EPS of $-0.31 increased by 45.6% from previous year
Gross margin of 67.2%
Net income of -100.22M
""We're firing all pistons. We're getting ready for a really good holiday season."" - Max Levchin
Affirm Holdings Inc (AFRM) QQ1 2025 Earnings Analysis: Revenue Expansion, Margin Trajectory, UK Market Entry, and Strategic Funding Levers
Executive Summary
Affirm reported QQ1 2025 revenue of $698.5 million, up 40.7% year over year and 5.96% quarter over quarter, supported by a robust gross margin of 67.2% and ongoing monetization of the platform’s unit economics. Despite top-line strength, the quarter produced a GAAP operating loss of $132.6 million and a net loss of $100.2 million (EPS -$0.31), driven by higher operating expenses and other costs. Management highlighted strong underlying unit economics, with improvements in pricing initiatives, gain on sale, and merchant services contributing to margin uplift, even as the company continues to reinvest in growth via 0% APR promotions and deeper merchant/consumer engagement. The company signaled a clear near-term profitability trajectory, guiding adjusted operating income margin above 20% for the current quarter, with Q2 guidance of 21%–23%, and reiterated a longer-term aspiration to grow margins from current levels while maintaining a 3%–4% RLTC framework.
QQ1 2025 highlights (USD):
- Revenue: 698.5 million; YoY growth 40.7%; QoQ growth 5.96%
- Gross Profit: 469.0 million; Gross Margin: 67.15%
- Operating Income: -132.6 million; Operating Margin: -19.0%
- Net Income: -100.2 million; Net Margin: -14.35%
- EBITDA: -71.9 million; EBITDA Margin: -10.29%
- EPS: -0.31; Diluted EPS: -0.31; Weighted avg shares: 318.2 million
- Cash flow: Operating cash flow 196.9 million; Free cash flow 152.7 million
- Liquidity: Cash and equivalents 1.046b; Short-term investments 1.074b; Total cash & short-term investments ~2.120b; Total assets ~$10.14b; Long-term debt ~$7.12b; Net debt ~$6.07b
- Balance sheet health: Current ratio 17.85; Debt to capitalization ~71.5%; ROE negative (approx -3.5%); Asset turnover modest (~0.069)
- Key margin commentary: Gross margin stable around 67%, operating margin remains negative but trending toward profitability thanks to pricing gains and capital-market benefits; RLTC margins guided to the high end of the 3%–4% framework over the full year.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
698.48M
40.67%
5.96%
Gross Profit
469.04M
62.91%
-17.71%
Operating Income
-132.62M
36.68%
-291.11%
Net Income
-100.22M
41.66%
-122.04%
EPS
-0.31
45.61%
-121.43%
Key Financial Ratios
currentRatio
17.85
grossProfitMargin
67.2%
operatingProfitMargin
-19%
netProfitMargin
-14.3%
returnOnAssets
-0.99%
returnOnEquity
-3.53%
debtEquityRatio
2.51
operatingCashFlowPerShare
$0.62
freeCashFlowPerShare
$0.48
priceToBookRatio
4.58
priceEarningsRatio
-32.4
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management commentary and Q&A themes:
- Strategy and growth catalysts: Max Levchin emphasized a “killer quarter” and readiness for a strong holiday season, while signaling ongoing investment in growth levers and higher merchant/consumer engagement. Quote: "We're firing all pistons. We're getting ready for a really good holiday season." (Max Levchin)
- RLTC and underwriting posture: Management framed underwriting discipline as persistent and iterative rather than reactive, targeting the higher end of the 3%–4% RLTC margin band and indicating that Q2 is typically a lower-margin quarter. Quote: "Our posture is largely unchanged... we were able to enjoy some very healthy consumer growth in the numbers in Q1 because we found ourselves with capital to put forward towards some incremental approvals." (Max Levchin) and supporting remarks from Michael Linford on continued investment within a controlled risk framework.
- Promotion strategy and promotions cadence: Executives discussed broad acceleration of 0% promotions and harmonization of financial programs across channels, with optimism on holiday volume and merchant demand. Quote: "we're certainly no strangers to leveraging zeros... feel very good about it, seeing a lot of demand" (Max Levchin) and "we are careful about them... but we're in a very different spot" (Michael Linford).
- UK market entry and moat expansion: Levchin highlighted strong early merchant reception and the primary value propositions in the UK—longer-term payment options and a merchant-friendly, fee-free model—anticipating meaningful demand from higher-ticket items. Quote: "The longer-term monthly payment products... is not well served" and a merchant-oriented, pure-play approach; UK leadership and partnerships are advancing, with a positive early signal from Alternative Airlines.
- Competitive moat and global expansion: Levchin underscored Affirm’s underwriting edge, data-infrastructure moat, and regulatory familiarity as competitive advantages that will be extended to Europe and the UK. Quote: "Our moat has been our willingness to do the hard difficult thing without compromise... we’re bringing the battle to them in Europe and in the UK."
"We're firing all pistons. We're getting ready for a really good holiday season."
— Max Levchin
"The strong unit economics in the business right now combined with a pretty favorable outlook that we have on the next quarters to come puts us in a position where we get to be pretty aggressive here right now."
— Michael Linford
Forward Guidance
Near-term profitability trajectory is emphasized by management, with Q2 adjusted operating income margin guided to 21%–23% and the long-run operating margin framework reaffirmed at 3%–4% RLTC. Management attributes margin outperformance to stronger unit economics, pricing initiatives, gain-on-sale benefits, and favorable capital-market conditions, while acknowledging that RLTC improvements take time to fully flow through the P&L (approximately 40 bps of cost savings per 100 bps of rate movement over a year to 18 months). The company plans to reinvest in growth through 0%/low-APR promotions, down-P&L operating expense investments, and deeper approvals, balanced against prudent underwriting and risk management. Strategic initiatives include UK market entry with longer-term financing (6–12 months) to address higher-ticket purchases, expanding through partnerships, and a continued focus on high-velocity, merchant-friendly offers across channels.
Key factors for investors to monitor:
- Sustainability of Q2 margin expansion and the trajectory toward profitability on a P&L basis.
- Effectiveness of RLTC strategy in a potentially evolving regulatory and macro-rate environment (rates as a tailwind of roughly 40 bps per 100 bps rate move over time).
- Progress and monetization of UK/European expansion (revenue contribution, credit risk performance, and merchant adoption).
- Funding mix stability (forward flow, ABS, and warehouse financing) and its impact on margin and liquidity.
- Competitive dynamics, particularly in BNPL and broader consumer finance, and the durability of Affirm’s underwriting moat.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AFRM Focus
67.15%
-19.00%
-3.53%
-32.40%
UPST
96.80%
-1.10%
-0.36%
-443.35%
SOFI
90.30%
27.90%
1.06%
44.89%
RBLX
78.30%
-24.60%
-69.20%
-45.51%
HOOD
31.30%
39.90%
4.22%
27.39%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Affirm’s QQ1 2025 results depict a business with strong top-line growth and improving unit economics, positioning the firm for accelerated profitability as it scales growth initiatives. The reported Q2 adjusted operating income margin guidance of 21%–23% signals a clear path toward profitability on the P&L, supported by pricing leverage, gain-on-sale benefits, and favorable capital-market dynamics. UK expansion represents a meaningful leverage point for incremental revenue, provided underwriting performance remains disciplined. While the balance sheet carries a sizable debt burden, liquidity is ample, and cash flow generation is positive, underpinning the ability to fund growth while managing risk. Investors should monitor RLTC progression, funding-cost dynamics, and regulatory developments, particularly as AFFIRM expands internationally. Overall, the investment thesis remains constructive, anchored by a durable underwriting moat, scalable funding strategy, and a strategic growth program in high-potential markets.
Key Investment Factors
Growth Potential
UK/EU market expansion unlocks a larger addressable market for longer-term BNPL solutions, potential merchant network effects, and higher-ticket transactions. The combination of a 67% gross margin and improving RLTC efficiency supports scalable growth as the platform monetizes incremental originations and cross-sell opportunities.
Profitability Risk
GAAP profitability remains negative with ongoing investment in growth; high leverage (long-term debt ~$7.12b) and sizeable interest expense ($104m in the quarter) pose refinancing and macro-rate sensitivities. Regulatory scrutiny and competitive intensity in BNPL (including international entrants and Apple Pay integrations) could compress margins if funding costs rise or underwriting discipline eases.
Financial Position
Strong liquidity with ~$2.12b in cash and short-term investments and a robust cash flow profile in QQ1 2025 (operating cash flow $196.9m; free cash flow $152.7m). However, a high debt load and negative net income necessitate continued focus on profitability and prudent capital management. The balance sheet shows solid asset liquidity and a healthy current ratio (17.85), supporting working capital needs and potential future funding partnerships.
SWOT Analysis
Strengths
High gross margin (~67.2%) and solid unit economics that support selective reinvestment
Diversified and scalable funding channels (forward flow, ABS, warehouse) contributing to liquidity
Strong cash generation from operations and positive free cash flow
Strategic UK/Europe expansion with longer-term financing products addressing higher-ticket purchases
Robust underwriting capabilities and a deep ML/credit-scoring heritage, creating a durable moat
Weaknesses
GAAP net loss and negative EBITDA, signaling ongoing profitability challenges
Significant long-term debt and interest expense that press on earnings and cash flows
Concentration risk in financing channels and sensitivity to macro-rate movements
Regulatory scrutiny and evolving sponsored-bank relationships could affect funding optics
Opportunities
UK/European penetration with longer-term BNPL products expanding addressable market
Merchant demand for fee-free, no-interest promotions driving volume growth
Enhanced monetization via pricing adjustments, gain-on-sale, and merchant fees
Continued optimization of RLTC to improve profitability while growing originations
Threats
Regulatory risk and potential changes to BNPL funding and compliance requirements
Intense competition from peers and cross-border entrants integrating with traditional payments rails
Macro-rate volatility affecting funding costs and RLTC economics
Credit risk and fraud exposure in new markets (e.g., UK) during expansion