Assessing Affirm Holdings' 12% Stock Surge: Can Sustainable Growth Weather Shifting Credit Dynamics?

Affirm Holdings (AFRM) has surged 12% in recent trading sessions, fueled by a mix of robust revenue growth, strategic product innovations, and expanding merchant partnerships. However, investors must critically evaluate whether this momentum reflects a sustainable trajectory amid evolving consumer credit dynamics, macroeconomic headwinds, and regulatory pressures.

Financial Performance: Growth Outpaces Profitability

Affirm's Q3 2024 results underscored its ability to scale rapidly. Total net revenues rose 51% year-over-year to $576.2 million, driven by a 36% increase in Gross Merchandise Volume (GMV) to $6.3 billion and a 19% rise in active merchants to 292,000. The company also reported a narrower-than-expected loss of 43 cents per share, improving from a 69-cent loss in the prior-year quarter. This progress was partly offset by an 84% surge in credit loss provisions to $122.4 million, reflecting heightened risk exposure.

Despite these challenges, Affirm's cash reserves grew 42.7% year-over-year to $1.3 billion, and its Q4 2024 guidance-projecting GMV of $6.75–$6.95 billion and revenues of $585–$605 million-signals confidence in sustaining growth. Notably, the company achieved GAAP profitability in Q1 2025, reporting a $25 million net income and a 12.5% operating margin, a milestone that positions it as a more mature player in the buy now, pay later (BNPL) sector.

Market Dynamics: BNPL's Resilience and Competitive Edge

The BNPL market remains a key growth engine, with global size projected to reach $560.1 billion in 2025, expanding at a 13.7% annual rate. Affirm's 42% year-over-year GMV growth in 2025 outpaced many peers, including Sezzle's 59% GMV increase, as both leveraged subscription models and repeat customer engagement according to Q3 lending reports. Strategic partnerships, such as Affirm's extension with Apple Pay and its integration with major retailers like Walmart and DICK'S Sporting Goods, have further diversified its merchant network to over 358,000 partners.

However, the sector faces headwinds. Rising interest rates have increased securitization costs, squeezing margins for interest-free BNPL offerings. Regulatory scrutiny, particularly in the EU, has also intensified, with late-fee caps threatening profitability. Affirm's proactive approach-launching products like "Pay in 2" and "Pay in 30"-has mitigated some of these risks by fostering customer loyalty and repeat usage.

Credit Risk Management: A Double-Edged Sword

Affirm's credit risk profile remains a critical factor. While its 30-day delinquency rate for BNPL loans stood at 2.8% in Q3 2025-lower than the U.S. credit card delinquency rate of over 3%-its provision for credit losses rose 1.8% year-over-year to $162.8 million in Q1 2026 according to financial reports. Analysts attribute the lower delinquency rate to BNPL's shorter repayment terms and smaller loan sizes compared to traditional credit instruments as reported by Statista.

Affirm's decision to report all U.S. BNPL activity to credit bureaus-a unique industry practice-may further enhance consumer credit discipline according to company disclosures. However, this reporting is not yet widespread, limiting lenders' visibility into BNPL activity. Competitors like Mastercard and Visa, with diversified revenue models and lower exposure to consumer credit risk, maintain historically lower credit loss ratios as detailed in industry analysis.

Macroeconomic and Regulatory Headwinds

Affirm's growth sustainability hinges on navigating macroeconomic and regulatory challenges. High interest rates have elevated funding costs, particularly for 0% interest plans, while inflationary pressures could dampen consumer spending as reported by market analysis. Regulatory scrutiny from the Consumer Financial Protection Bureau (CFPB) and calls for stricter fee transparency may further constrain operational flexibility according to market reports.
Yet, Affirm's strategic innovations and disciplined risk management offer a counterbalance. Its focus on high-value and interest-bearing transactions-unlike many competitors-has attracted a diverse customer base, including high-income households. Additionally, its international expansion and partnerships with major retailers provide a buffer against sector-specific volatility.

Conclusion: A Tenuous Balance

Affirm's 12% stock surge reflects optimism about its market leadership and product differentiation. However, the company's long-term sustainability depends on its ability to manage credit risk, adapt to regulatory changes, and maintain profitability amid rising interest rates. While its GAAP profitability in Q1 2025 and strong merchant growth are encouraging, investors should remain cautious about macroeconomic uncertainties and the BNPL sector's inherent volatility. For now, Affirm appears well-positioned to capitalize on the BNPL boom, but its success will ultimately hinge on balancing aggressive growth with prudent risk management.