Buy now, pay later company Affirm (NASDAQ: AFRM) reported revenue ahead of Wall Street’s expectations in calendar Q3 2026 (fiscal Q1 2027), with sales up 35.2% year on year to $1.26 billion. Guidance for next quarter’s revenue was better than expected at $1.45 billion at the midpoint, 1.1% above analysts’ estimates. Its GAAP profit of $0.47 per share was 22.7% above analysts’ consensus estimates.

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StockStory’s take

Affirm’s most recent quarter saw strong top-line growth, with management attributing the performance to continued momentum in both core buy now, pay later offerings and newer verticals. Despite exceeding Wall Street expectations for revenue and profit, management acknowledged that increased provision expenses and a rise in delinquencies contributed to negative investor sentiment. CEO Max Levchin addressed concerns about credit quality and funding costs, emphasizing that recent increases in provision were tied to controlled experiments and seasonality, stating, “The provision update has to do with some, we think it's very intelligent segmentation, but it's all entirely in our control.”

Looking ahead, Affirm’s guidance is shaped by management’s commitment to maintaining growth above 30% and expanding its presence in new markets and product categories. The company sees opportunities in agentic shopping, expanded merchant relationships, and scaling its Affirm Card and Edge pilot initiatives. Levchin highlighted the focus on underwriting advancements, stating, “One way [to grow] is to build new features, new products. The other way, find better risks without taking incremental loss or incremental delinquencies, and that's exactly what this model does.” Management remains focused on broadening the business with new verticals and partnerships while monitoring credit and operational risks.

Key insights from management’s remarks

Affirm’s leadership pointed to several operational and product initiatives as drivers behind robust revenue growth and evolving business mix during the quarter.

• Underwriting model enhancements: Management highlighted deployment of a new transformer-based architecture for risk assessment, allowing more precise credit approvals without increasing loan losses. Levchin noted the model “improves our approvals roughly twice better than the next candidate in a traditional” model, supporting both growth and credit quality.

• Expansion in services verticals: Affirm reported strong uptake in adjacent segments like home improvement and offline services, with Levchin referencing partnerships with platforms like Intuit and ServiceTitan. These moves diversify revenue beyond traditional e-commerce and require careful, multi-quarter product fit adjustments.

• Direct-to-consumer mix shift: The Affirm Card and digital wallet integrations drove roughly half of transaction volume, though at a lower average merchant discount rate (MDR) compared to directly integrated merchants. Management views the Affirm Card as a strategic channel for long-term engagement and profitability despite initial margin trade-offs.

• Provisioning and credit risk experiments: CFO Rob O’Hare explained that increased provision expenses were tied to targeted experiments on the balance sheet and new user acquisition, rather than broader credit deterioration. Management emphasized that short average loan duration and active risk segmentation help contain exposure.

• Brand-sponsored promotions (BSPs): The ZT1 team is scaling BSPs, enabling manufacturers to fund zero percent financing at the SKU level. This approach targets both merchants and brands, aiming to drive incremental volume through more granular promotions and digital marketing tie-ins.

Drivers of future performance

Management’s outlook centers on sustaining high growth through product expansion, careful credit management, and new technology adoption, while acknowledging potential headwinds from funding costs and evolving consumer behavior.

• Growth from new products and geographies: Affirm expects continued momentum from the rollout of new verticals and international expansion, including pilot programs like Affirm Edge targeting bank partners. Management sees these as key to maintaining growth above 30%.

• Margin management and funding costs: O’Hare cautioned that funding costs, while stable due to fixed-rate deals, remain a variable to monitor. The company’s margin outlook also incorporates higher expenses from warrant programs tied to new user growth, particularly in new markets like the U.K.

• Credit quality and risk segmentation: Affirm’s short loan duration and advanced underwriting models help manage credit risk even as delinquencies fluctuate seasonally. Management is focused on balancing growth with prudent risk, leveraging data and AI-driven segmentation to keep losses within target ranges.

Catalysts in upcoming quarters

In coming quarters, our analysts will watch (1) the pace of adoption and profitability in new verticals such as services and international markets, (2) the rollout and user engagement with Affirm Card and Edge pilots, and (3) how improvements in underwriting technology affect approval rates and credit outcomes. Execution on brand-sponsored promotions and digital wallet partnerships will also serve as key indicators of future growth and product traction.

Affirm currently trades at $64.07, down from $69.66 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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