AFRM Q2 Deep Dive: 0% APR and Card Expansion Drive Margin Turnaround

Buy now, pay later company Affirm (NASDAQ:AFRM) announced better-than-expected revenue in Q2 CY2025, with sales up 33% year on year to $876.4 million. Guidance for next quarter’s revenue was better than expected at $870 million at the midpoint, 1.2% above analysts’ estimates. Its GAAP profit of $0.20 per share was 75.9% above analysts’ consensus estimates.

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StockStory’s Take

Affirm’s second quarter results were met with a significant positive market reaction, reflecting the company’s strong year-over-year revenue growth and improved profitability. Management attributed the performance to robust consumer demand for Affirm’s buy now, pay later services and the increasing adoption of 0% APR offerings by merchants. CEO Max Levchin highlighted that growth in gross merchandise volume was supported by both repeat usage and a broadening merchant base, noting, “We are firing on all pistons,” and pointing to the increased role of 0% APR loans in driving new customer acquisition and engagement.

Looking ahead, Affirm’s management expects continued momentum based on expanding access to its Affirm Card and deepening relationships with both merchants and consumers. The company is investing in AI-powered checkout solutions and actively pursuing international expansion, particularly in the U.K. through its partnership with Shopify. While pointing to stable credit performance and a favorable funding environment, CFO Rob O’Hare cautioned that Affirm remains vigilant about underwriting standards, stating, “Credit is job #1,” and emphasizing the company’s flexibility to adjust underwriting should macroeconomic conditions shift.

Key Insights from Management’s Remarks

Management credited the quarter’s performance to increased merchant adoption of 0% APR loans, rising Affirm Card usage, and strong credit discipline, which together drove margin improvement and repeat customer activity.

• Merchant adoption of 0% APR: Affirm saw a significant rise in merchants offering 0% APR financing, which management described as a key growth lever. The share of merchants funding these promotions doubled year-over-year, and CEO Max Levchin suggested that merchant participation could “round up to almost 100” over time, given the efficiency of this approach in driving sales.
• Affirm Card momentum: The Affirm Card generated $1.2 billion in volume and achieved a 10% attach rate, with management highlighting its role as a frequency driver. Levchin reported that average cardholder spend is now $4,700 annually, up from $3,500 previously, and emphasized ongoing investment to make the card more compelling for consumers.
• AI-powered checkout optimization: The roll-out of AdaptAI, Affirm’s machine learning-driven checkout optimizer, resulted in an average 5% increase in gross merchandise volume for participating merchants. Management expects further improvements as more merchants adopt the tool, which dynamically configures financing offers to maximize conversion.
• Repeat customer activity: Repeat borrowers represented 95% of Affirm’s transactions this quarter, underscoring the stickiness of its platform. Management noted that users acquired via 0% APR promotions often convert to interest-bearing products over time, supporting long-term profitability.
• Disciplined credit and funding: Affirm maintained strict underwriting standards despite a favorable funding environment, with management stressing that “credit is job #1.” The company’s short-duration loans and high proportion of repeat customers enable close monitoring of credit trends, which management described as “highly consistent.”

Drivers of Future Performance

Affirm’s outlook for the next quarter and year is shaped by further expansion of its card, AI-driven merchant solutions, and continued international scaling, balanced by ongoing focus on credit quality and competitive dynamics.

• Affirm Card and offline expansion: Management plans to accelerate Affirm Card adoption and expand its use in offline retail settings, which represent a large untapped opportunity compared to online transactions. Levchin emphasized that unlocking offline commerce could significantly increase transaction volumes and broaden Affirm’s addressable market.
• AI and merchant tools investment: The company is prioritizing the deployment of AdaptAI and similar machine learning tools to improve merchant conversion rates and consumer engagement. As more merchants adopt AI-driven checkout optimization, management expects incremental gains in both volume and profitability.
• International growth and competitive landscape: Affirm is moving forward with international expansion, initially focusing on the U.K. through its integration with Shopify. While management is optimistic about replicating its domestic underwriting discipline abroad, they acknowledged that local regulatory requirements and established competitors could present challenges, requiring careful execution and partnership strategies.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will track (1) the pace of Affirm Card adoption and its expansion into offline retail, (2) merchant uptake and measurable impact of AdaptAI and other AI-powered tools on conversion and volume, and (3) progress in international markets, especially the U.K., as Affirm seeks to diversify beyond its North American base. The company’s ability to sustain credit quality and manage competitive pressures will also be crucial markers of execution.

Affirm currently trades at $93.33, up from $79.96 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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