AFRM Jumps on Q4 Results Before Klarna Crashes the Party: Buy or Bail?

Affirm Holdings, Inc. AFRM has been on a rollercoaster ride since releasing its fiscal fourth-quarter 2025 results last Thursday. Shares of the company gained 10.6% on Friday as investors cheered the earnings beat and upbeat fiscal 2026 outlook. But the rally quickly lost steam — AFRM stock has slipped 3.6% since, pressured by reports that Swedish rival Klarna is moving ahead with its long-awaited U.S. IPO.

Klarna’s entry into U.S. markets raises the stakes in the already competitive “buy now, pay later” (BNPL) space, forcing investors to reassess Affirm’s valuation and growth trajectory. Let’s break down AFRM’s latest results, growth levers and challenges.

Key Highlights From AFRM’s Q4 Earnings

It reported fourth-quarter fiscal 2025 earnings of 20 cents per share, easily topping the Zacks Consensus Estimate of 11 cents and improving from the prior-year quarter’s loss of 14 cents. Revenue rose 33% year over year to $876.4 million, and beat the consensus mark by 4.4%.

Gross Merchandise Value (GMV) reached $10.4 billion, up 43% from the prior year and ahead of the $9.5 billion Zacks Consensus Estimate. Growth was supported by strong performance across Affirm’s largest merchant partner, 0% APR loans and direct-to-consumer channels. Transactions totaled 37.5 million, up 51.8% year over year, driven largely by repeat customers.

Read more here: Affirm Q4 Earnings Beat Estimates on Increasing Transaction Volumes

AFRM’s Growth Drivers Holding Strong

Repeat customers are emerging as Affirm’s backbone. In the fiscal fourth quarter, 95% of transactions came from returning users, highlighting brand stickiness and more predictable revenue streams. The company’s growing focus on high-frequency, small-ticket purchases will add stability to its growth.

The company’s model benefits both merchants and consumers. By reducing cart abandonment and offering flexible, transparent payment options — including 0% APR monthly installments — Affirm drives sales for partners while building a strong user base. Demand for 0% APR plans is booming, up 93% year over year in the fiscal fourth quarter, representing 14% of GMV.

Expansion beyond North America remains another lever. In partnership with Shopify, Affirm is extending operations into Western Europe, starting with France, Germany and the Netherlands. This global push, backed by existing major merchant relationships, will unlock significant growth potential.

Looking ahead, the company anticipates that fiscal 2026 GMV will top $46 billion, up from $36.7 billion in the prior year. Revenues are expected to be 8.4% of GMV. Adjusted operating margin is estimated to be more than 26.1% in fiscal 2026, up from 24.1% in fiscal 2025.

In addition to its BNPL offerings, Affirm is investing in complementary financial products, including debit solutions and business-to-business tools. These innovations will likely drive frequent usage, deepen customer relationships and strengthen its ecosystem. As of June 30, 2025, the active merchant count was 377,000, while active consumers reached 23 million.

Favorable Earnings Estimates for AFRM

The Zacks Consensus Estimate for Affirm’s fiscal 2026 earnings suggests a 427% year-over-year surge to 79 cents per share, while fiscal 2027 earnings are expected to grow nearly 78.7%. Both witnessed upward revisions over the past week. Revenue projections are also strong, with fiscal 2026 and 2027 expected to grow 21.4% and 22.4%, respectively.

It has delivered solid financial results lately, beating earnings estimates in each of the trailing four quarters, the average surprise being 105.5%.

Affirm Holdings, Inc. Price, Consensus and EPS Surprise

Affirm Holdings, Inc. price-consensus-eps-surprise-chart | Affirm Holdings, Inc. Quote

AFRM’s YTD Price Performance & Valuation

Affirm’s stock has soared 40% in the year-to-date period, significantly outperforming the broader industry and the S&P 500 Index. In contrast, major BNPL service providers PayPal Holdings, Inc. PYPL and Block, Inc. XYZ shares have plunged 18.5% and 10.9%, respectively, during this time.

Price Performance – AFRM, PYPL, XYZ, Industry & S&P 500

In terms of valuation, Affirm is trading at a premium. Its 6.76X forward 12-month sales is higher than the three-year median of 3.70X and the industry average of 5.61X. AFRM currently has a Value Score of F. Meanwhile, PayPal and Block are currently trading cheaper at forward P/S of 1.93X and 1.76X, respectively.

AFRM’s Headwinds to Monitor

As of June 30, 2025, Affirm carried a long-term debt of $7.8 billion. Although it is still a growing company, its long-term debt-to-capital ratio of 71.8% significantly towers over the industry average of 13.7%, which remains a concern. It needs to demonstrate sustained earnings over the coming quarters to reassure investors about its ability to manage obligations.

Competition is another thorn in its side. Klarna’s upcoming IPO, expected to raise to $1.27 billion from selling around 34 million shares, will add a fresh wave of intensity to an already crowded BNPL market. The competitive threat is not just theoretical: Walmart’s decision to switch from Affirm to Klarna underscores how fragile merchant relationships can be in this space. Beyond Klarna, Affirm must contend with well-established fintech names like PayPal and Block, as well as traditional banks and credit card issuers that are steadily rolling out their own installment-payment products. Together, these factors present a tough backdrop even as Affirm continues to post strong growth.

Conclusion

Affirm has delivered impressive quarterly results, highlighted by strong revenue growth, surging GMV, and rising repeat customer activity. Its international expansion and product diversification add further fuel to its long-term growth story, while upward-trending earnings estimates underscore the company’s positive momentum.

However, elevated debt levels, a premium valuation, and intensifying competition — especially with Klarna’s U.S. IPO on the horizon — temper the near-term risk-reward profile. These headwinds will likely weigh on sentiment, even as fundamentals remain supportive.

Given this mix of strengths and challenges, Affirm currently carries a Zacks Rank #3 (Hold), suggesting that while the company is well-positioned for growth, investors may want to wait for a more attractive entry point or clearer signs of competitive stability before adding exposure.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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