AFRM Q4 2025: Diversification and Product Expansion Fueling Scalable Growth

The latest quarter provides clear evidence of a scalable growth engine in motion. Affirm's core metrics show not just strong top-line expansion, but also deepening platform engagement and a broadening user base-key ingredients for capturing market share in the BNPL space.

Revenue growth was robust, climbing 29.6% year on year to $1.12 billion, decisively beating analyst estimates. This acceleration was powered by a surge in transaction volume, with gross merchandise volume (GMV) growing 36% to $13.8 billion. This dual-track growth-revenue and GMV both expanding at double-digit rates-signals that the company is successfully converting more consumer spending into its platform, a fundamental driver of scalability.

Equally important is the health of the user base, which demonstrates powerful network effects. The company reported a record repeat borrower rate, with 95% of transactions in the quarter coming from repeat borrowers. This high level of engagement is a critical indicator of platform stickiness and low customer acquisition cost over time. It suggests Affirm is not just attracting new users, but is embedding itself into their regular spending habits, creating a durable revenue stream.

This stickiness is built on a foundation of a rapidly growing active consumer base. The company's user count expanded to 25.8 million, up 23% from the prior year. With users becoming more active-transactions per consumer rose 20%-this large and engaged base provides a vast, fertile ground for future product penetration. The company's strategic initiatives, like the Affirm Card and AI-powered checkout tools, are designed to deepen this engagement and increase the average revenue per user.

Together, these figures paint a picture of a scalable model. The company is capturing market share by driving both top-line growth and user loyalty, all while expanding its addressable base. The challenge now shifts from proving the model works to executing on the next phase of product diversification and international expansion to maintain this momentum.

Diversification Strategies: Expanding the Addressable Market

Affirm's growth strategy is now clearly focused on diversification, moving beyond its merchant-fee model to capture a larger share of the consumer credit market. This shift is critical for scaling revenue and building a more resilient business. The company is executing this plan through two powerful levers: its product suite and a strategic push into banking.

The first lever is the aggressive rollout of its 0% APR products and the Affirm Card. These tools are not just new offerings; they are growth engines designed to attract and retain users. Evidence shows that approximately 50% of first-time users in the most recent quarter originated on 0% APR products. More importantly, these users are not one-offs. They exhibit repeat usage patterns similar to the broader user base, indicating the product successfully hooks new customers and integrates them into the platform. This is a scalable acquisition channel. Furthermore, the Affirm Card itself is gaining traction, with annualized GMV reaching $1.2 billion and a rising attach rate. The strategic logic is clear: these products convert users to more profitable, interest-bearing loans over time, creating a predictable revenue stream from a single customer.

The second, more transformative lever is the proposed creation of Affirm Bank. The company has formally submitted applications to establish an FDIC-insured industrial loan company. This move is about scale and control. By becoming a bank, Affirm would gain a direct, regulated balance sheet to fund its lending, reducing reliance on third-party capital partners and their associated costs. This would allow the company to expand access to credit more responsively and introduce new products faster. As CEO Max Levchin stated, the goal is to "bring honest financial products to more people" and build for the long term. The bank would complement, not replace, existing models, providing greater flexibility and diversification.

The foundation for this expansion is already massive. Since its founding, Affirm has extended $130 billion in access to credit to approximately 60 million people. This scale is the bedrock of its market reach. It demonstrates the company's ability to underwrite and manage a vast credit portfolio responsibly. With this base, the path to becoming a full-service lender is now in sight. The proposed bank is the next step to convert this existing credit extension into a more scalable, diversified, and profitable business model.

Product Expansion: Building a Multi-Product Platform

Affirm's new product initiatives are the core of its strategy to build a multi-product platform that drives future revenue and deepens customer relationships. The company is using lower-margin tools to acquire users, with the explicit goal of converting them into more profitable, long-term customers-a classic growth play.

The most telling data point is the success of its 0% APR product as an acquisition engine. In the most recent quarter, approximately 50% of first-time users originated on 0% APR products. This isn't just a one-time offer; these users are sticky, exhibiting repeat usage patterns similar to the broader base. The strategic logic is clear: these low-margin loans act as a powerful hook to onboard new customers. Management notes that customers who initially use 0% APR loans convert to interest-bearing products, providing a direct pipeline for incremental future revenue streams. This model turns a short-term margin sacrifice into a long-term asset.

This conversion is already generating tangible yield. The company's interest income grew 21% year-over-year, driven primarily by a 22% increase in average net loans held for investment. This growth in earning assets is the direct result of the bank strategy taking hold. As Affirm builds its balance sheet, it is earning a return on the capital it deploys, moving beyond a pure transaction fee model. The expansion of its lending portfolio is the engine for this higher-margin income.

The bottom line is a scalable user lifecycle. Affirm uses the 0% APR product to acquire users at scale, then leverages its platform and the upcoming bank infrastructure to cross-sell and upsell them into more profitable products like the Affirm Card and standard interest-bearing loans. This creates a powerful flywheel: each new user becomes a potential source of higher lifetime value. The company's focus on product diversification is not about chasing new markets in isolation; it's about building a comprehensive financial ecosystem where each product serves a purpose in the customer journey, from initial acquisition to long-term monetization.

Scalability, TAM, and the Growth Investor Thesis

The path to capturing Affirm's vast market potential hinges on executing its diversification strategy, with the successful launch of Affirm Bank as the primary catalyst. The company's current model, built on merchant fees, has a clear ceiling. The proposed bank would fundamentally expand the total addressable market by granting Affirm direct control over its funding and balance sheet. This shift enables a scalable lending business, moving beyond transaction fees to earn interest income on a growing portfolio of loans. As CEO Max Levchin stated, the goal is to "bring honest financial products to more people" and build for the long term. If approved, this would unlock a new, higher-margin revenue stream and provide the capital flexibility to aggressively grow its user base and product offerings.

The primary risk to this growth thesis is managing credit costs as the loan portfolio expands. The company's provision for credit losses jumped to $214.2 million in the second quarter, compared to nearly $153 million from the same quarter a year ago. This increase signals that the company is proactively setting aside more capital to cover potential defaults, a necessary cost of scaling. The risk is that rising delinquencies, especially in a less-than-ideal macroeconomic environment, could pressure margins and force a slowdown in lending growth. The company's ability to maintain disciplined underwriting while expanding access to credit will be critical.

This tension between growth and risk is reflected in the market's reaction. Despite posting strong results with revenue beating estimates, the stock fell 4.41% in after-hours trading. The sell-off was driven by investor concerns about a projected growth slowdown, with management guiding for third-quarter GMV growth around 30% and fourth-quarter growth around 25%. This deceleration from the recent 36% GMV growth rate raises questions about the sustainability of the current expansion pace. For the growth investor, the setup is clear: the company is executing a bold, multi-year plan to become a full-service lender, but the near-term path involves navigating higher credit costs and a natural slowdown in growth rates. The success of the bank application and the company's ability to manage credit quality will determine whether it can capture its market.