AFRM • 10-K • FY 2025 • Positive

Affirm's Merchant Network Expansion Drives 47% GMV Growth Despite Rising Credit Costs

August 28, 2025 • 1 min read

TL;DR

Affirm demonstrated strong merchant network growth with total GMV reaching $24.7B (+47% YoY), powered by enterprise partnerships and SMB expansion. Credit losses increased 180bps to 5.8% of GMV as the company navigated a challenging consumer credit environment. Active merchants grew 89% to 245,000 while active consumers increased 32% to 15.7M. The company's strategic shift toward shorter-duration, lower-risk loans and enhanced underwriting models positions it for sustainable growth despite macro

Financial Performance Overview: Revenue grew 43% YoY to $1.68B, with transaction revenue up 51% to $1.12B. Network revenue expanded 38% to $562M as merchant adoption accelerated. Operating losses narrowed to $582M (-34.6% margin) from $707M (-60.2%) as scale benefits emerged. Credit performance showed stress with delinquency rates rising 120bps YoY to 3.4%, though remaining below pre-pandemic levels. Transaction contribution margin compressed 320bps to 46% on higher funding costs.
Strategic Initiatives and Operational Changes: Affirm launched adaptive checkout optimization, driving a 31% improvement in checkout conversion. The company expanded its merchant network through new enterprise partnerships including Target and Walmart+. Risk management enhancements include ML-powered underwriting updates and shorter loan duration mix shift (65% ≤3 months vs 48% prior year). The Debit+ card program reached 175,000 active users with plans for full rollout in FY24.
Market Position and Competitive Dynamics: Affirm maintained 28% BNPL market share in US ecommerce despite increased competition from traditional banks and fintechs. Top 10 merchants represent 65% of GMV, down from 73% as SMB penetration improved. Merchant retention rate of 98% demonstrates strong network effects. The company expanded internationally to Canada and Australia, though facing established incumbents. Integration with major payment networks strengthens competitive moat.
Operational Efficiency and Profitability: Technology and data investments reduced transaction processing costs 18% per loan. Sales & marketing efficiency improved with CAC declining 22% YoY to $155. Engineering headcount grew 15% while total headcount remained flat, reflecting automation gains. Unit economics show path to profitability with contribution profit per transaction of $21 (+8% YoY) despite credit normalization.
Growth Catalysts and Material Risks: Near-term growth drivers include Debit+ expansion, SMB merchant acquisition, and international rollout. Rising interest rates and potential recession pose credit performance risks. Regulatory scrutiny of BNPL industry creates compliance costs and growth uncertainty. Management expects 20-25% GMV growth in FY24 with improving unit economics as credit environment stabilizes.

Revenue

$1.68B ( YoY, QoQ) with transaction revenue leading growth

↑ +43%

Rd Spend

$425M ( YoY) representing of revenue

↑ +15%

Net Income

-$582M (improved from -$707M YoY) with margin

↓ -34.6%

Gross Margin

(-320bps YoY) impacted by credit costs

↑ 46%

Free Cash Flow

-$125M (improved from -$350M YoY)

Operating Margin

(+2560bps YoY) showing operational leverage

↓ -34.6%

Growth Indicators

$24.7B ( YoY)

↑ +47%

Repeat Rate ↑89% (+400bps YoY)

Credit Metrics ↑5.8% loss rate (+180bps YoY)

Customer Count ↑15.7M active consumers (+32% YoY)

Merchant Count ↑245,000 active merchants (+89% YoY)

Key Risks

Credit losses increased 180bps to 5.8% of GMV
Regulatory scrutiny of BNPL industry intensifying
Interest rate environment pressuring funding costs
Merchant concentration with top 10 representing 65% of GMV

Key Opportunities

SMB merchant expansion with 89% YoY growth in active merchants
International markets represent significant TAM expansion
Debit+ card program scaling with 175,000 active users
Enhanced data capabilities enabling improved underwriting and personalization

Bottom Line

Affirm demonstrated strong execution in FY23 despite macro headwinds, with network effects and operational improvements offsetting credit normalization. The strategic shift toward lower-risk products and enhanced underwriting positions the company for sustainable growth. While near-term credit costs bear watching, improved unit economics and merchant network expansion create long-term value. Key metrics to monitor include credit performance, merchant diversification, and Debit+ adoption. The company's technology investments and platform approach differentiate it in an increasingly competitive market.