EPS of $-0.14 increased by 79.7% from previous year
Gross margin of 86.5%
Net income of -45.14M
"Underwriting is hard. You gotta get data. You gotta get it in real time. You have to verify it for both validity and accuracy and timeliness and all the good stuff. And it's a real complicated thing that we do here really well." - Max Levchin
Affirm Holdings Inc (AFRM) QQ4 2024 Earnings Analysis: Revenue Acceleration, Margin Improvement, and Strategic Positioning in BNPL
Executive Summary
Affirm Holdings delivered strong top-line growth in QQ4 2024, with revenue of $659.2 million, up 47.9% year over year and 14.4% quarter over quarter, and a gross margin of 86.5%. EBITDA totaled $130.6 million and operating income was $69.4 million, while net income was negative at $45.1 million on GAAP basis, reflecting continued interest expense and non-operating items. The company highlighted meaningful operating leverage, guiding to approximately 200 basis points of annual AOI margin expansion in FY2025 and reiterating a disciplined capital plan that prioritizes profitability alongside growth. Cashflow remained positive on an operating basis ($68.8 million) with free cash flow of $30.5 million, and Affirm ended QQ4 with $1.30 billion in cash and equivalents against $6.46 billion in total debt (net debt ≈ $5.16 billion). Management underscored a deliberate strategy to fund growth through diversified capital markets activity and securitizations, while signaling a long-run ambition to scale the Affirm Card platform and broader BNPL offerings. The QQ4 results were aided by a lower RLTC impact (excluding a one-off securitization benefit) and a favorable mix of originations, yet the firm remains exposed to funding-cost dynamics and a still-elevated debt load. A key strategic narrative centers on real-time underwriting, wallet/merchant partnerships (including Apple Pay), cohort engagement gains, and new product features to broaden the addressable consumer base and increase per-user spend toward a longer-term target of ~$7,500 annual spend and ~20 million active cards.
Net income: -$45.136M; net income margin -6.85%; EPS -$0.14 (diluted)
EBITDA: $130.559M; EBITDA margin 19.81%
Financial Highlights
Revenue and profitability
- Revenue: $659.185M; YoY growth 47.86%; QoQ growth 14.41%
- Gross profit: $570.019M; gross margin 86.47%; YoY gross profit growth 156.46%; QoQ 16.82%
- Operating income: $69.396M; operating margin 10.53%; YoY operating income growth 128.46%; QoQ 430.55%
- Net income: -$45.136M; net income margin -6.85%; EPS -$0.14 (diluted)
- EBITDA: $130.559M; EBITDA margin 19.81%
- Weighted average shares outstanding: 315.482M
CU and cash flow
- Operating cash flow: $68.763M; Free cash flow: $30.507M
- Net cash provided by operating activities: $68.763M; net change in cash: -$324.292M
- Cash and cash equivalents: $1.295B at period end; total cash and short-term investments: $2.161B
- Capital expenditure: $38.256M; Cash at end of period: $1.295B; Net debt: approximately $5.156B
Balance sheet health and leverage
- Total assets: $9.519B; Total liabilities: $6.788B; Total stockholders’ equity: $2.732B
- Long-term debt: $6.109B; Total debt: $6.455B; Debt/Equity: 2.36; Debt ratio: 0.678
- Current ratio: 4.84; Quick ratio: 5.42; Cash ratio: 2.50
- ROE: -1.65%; ROA: -0.47%; P/S: 14.28x; P/B: 3.44x
Key operational indicators
- Customer metrics: Cohort engagement and repeat-transaction metrics showed improving engagement; target remains higher per-customer spend and active-card counts (e.g., ~$7,500 annual spend and ~20M active cards).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
659.19M
47.86%
14.41%
Gross Profit
570.02M
156.46%
16.82%
Operating Income
69.40M
128.46%
430.55%
Net Income
-45.14M
78.09%
66.30%
EPS
-0.14
79.71%
67.44%
Key Financial Ratios
currentRatio
4.84
grossProfitMargin
86.5%
operatingProfitMargin
10.5%
netProfitMargin
-6.85%
returnOnAssets
-0.47%
returnOnEquity
-1.65%
debtEquityRatio
2.36
operatingCashFlowPerShare
$0.22
freeCashFlowPerShare
$0.1
priceToBookRatio
3.44
priceEarningsRatio
-52.12
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ4 2024 earnings call:
- Strategy and growth: Affirm is advancing a multi-pronged growth strategy centered on real-time underwriting, expanded card-related promotions, and merchant/ wallet partnerships (including Apple Pay) to drive GMV and higher take rates while maintaining a 3%-4% revenue-less-transaction-cost framework; Max Levchin emphasized the platform as an 'ingredient brand' with broad channel exposure across wallets and merchant networks.
- Profitability and operating leverage: Management stressed the achieved or near-term path to profitability, highlighting that the company has achieved meaningful operating leverage and guided to ~200 bps AOI margin expansion in FY25; CFO transition to COO path and long-term margin expansion were underscored as core priorities.
- Apple Pay and wallet strategy: Max Levchin articulated that Apple Pay BNPL is a strategic, not a marginal feature, and stressed Affirm’s aim to be integrated across multiple wallets (Shop Pay, Google Pay, Amazon Pay, etc.), with the expectation that the business will stay within a 3%-4% revenue-less-transaction-cost band regardless of the wallet channel.
- Credit and pricing dynamics: Management highlighted the ability to price and underwrite in real time; the underwriting model is designed to be conservative and controlled, with rates and approvals influenced by funding costs but not forecasted solely by rate moves—positional leverage exists through securitization and fixed-rate funding on some facilities.
- Capital markets and RLTC: The call referenced a non-consolidated securitization that elevated RLTC above the normal range in Q4 (a one-off benefit), and emphasized that future RLTC performance depends on mix, funding access, and market terms; management signaled a plan to deliver ~+10 bps margin expansion in RLTC GMV mix year over year.
- Operational trajectory: The management discussion highlighted ongoing cohort improvements, higher repeat usage, and a longer-term aspiration to scale Affirm Card to broader usage, with a target of higher per-user spend and more widespread adoption. Quote: “Underwriting is hard... you price things in real time... it’s a real complicated thing that we do here really well.” (Max Levchin). Quote: “On the Apple side... I don’t think they’re capitulating... it’s a major thing. It’s not a feature.” (Max Levchin).
Underwriting is hard. You gotta get data. You gotta get it in real time. You have to verify it for both validity and accuracy and timeliness and all the good stuff. And it's a real complicated thing that we do here really well.
— Max Levchin
On the Apple side, I don't think they're capitulating. I think they, if anything, are saying this Buy Now Pay Later thing is huge and important and it's not a feature. It's a major thing.
— Max Levchin
Forward Guidance
Management guidance and near-term outlook indicate a constructive path to profitability and margin expansion in FY2025, with several caveats:
- Margin trajectory: Guided to approximately 200 basis points of AOI margin expansion for the year, supported by operating leverage and mix improvements. This implies a more favorable cost structure as the company scales and as the revenue mix shifts toward higher-margin lines (e.g., gain-on-sale and pricing leverage from capital strategies).
- Revenue growth cadence: Q1 GMV growth implied by the guide suggests ongoing momentum in initiatives already shipping (wallet integrations, international expansion, and merchant solutions). Management stressed that the floor guidance is conservative and that upside could arise from live initiatives or new channels, including potential material contributions from wallet partnerships if they reach scale.
- Wallet partnerships and Apple Pay: While not all wallet partnerships are live, Affirm expects long-term upside; however, management emphasizes that material upside would require hundreds of millions to billions in impact, and thus the 2025 plan is anchored in initiatives already contributing today.
- Funding costs and rate environment: The company sees funding-cost sensitivity as a factor in profitability; a lower rate environment could improve approvals and volume, but management noted funding costs are anchored by fixed-rate securitizations in several facilities, implying a lag between rate moves and funding-cost impacts.
- Key risks to monitor: consumer spending trends, macro job market dynamics, funding-market volatility, securitization timing and terms, regulatory developments affecting BNPL, and competitive intensity from BNPL peers and payment-platforms.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AFRM Focus
86.47%
10.50%
-1.65%
-52.12%
UPST
93.50%
-33.90%
-6.67%
-20.62%
SOFI
53.60%
6.92%
0.68%
63.48%
RBLX
77.10%
-47.40%
-4.24%
-22.13%
HOOD
51.40%
5.52%
0.45%
92.08%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Base-case: Affirm sustains revenue growth with continued margin expansion, achieving mid-teens to low-20s revenue growth and ~200 bps AOI margin expansion in FY2025, supported by operating leverage and higher-margin monetization (gain-on-sale, better pricing). The Apple Pay and broader wallet strategy could yield incremental GMV uplift, but only if live and executed at scale, given the 3%-4% revenue-less-transaction-cost target. Bear-case risks include delayed wallet activations, slower GMV growth due to macro headwinds, or funding-cost spikes that compress margins. Bull-case upside arises if wallet partnerships reach scale, enabling higher origination volumes and stronger ROIC, while maintaining disciplined credit risk controls. In all scenarios, Affirm’s path to GAAP profitability appears increasingly plausible, though timing remains contingent on funding terms, product rollout cadence, and macro dynamics. Relative to peers, Affirm’s margin discipline and real-time pricing edge provide a competitive moat, but high leverage and funding-dependence introduce meaningful risk relative to less-levered fintech players.
Key Investment Factors
Growth Potential
Affirm’s growth hinges on expanding GMV through the merchant network and card-network initiatives, broadening the Affirm Card product suite (0% promos, longer pay windows, Pay in 2/30, adaptive checkout), and deeper cohort engagement that could lift average spend toward the ~$7,500 annual target and active-card base toward ~20 million. Apple Pay and other wallet integrations offer potential incremental volumes without continually compounding unit economics beyond the 3%-4% revenue-less-transaction-cost band.
Profitability Risk
Key risks include dependence on securitized funding and capital-market access, potential funding-cost volatility, regulatory scrutiny of BNPL models, competitive pressure from PayPal, Klarna/Afterpay, and bank-only BNPL entrants, macroeconomic deterioration reducing consumer spend, and execution risk in new product features and merchant onboarding. The balance sheet remains highly levered, with net debt around $5.16B and significant long-term debt load, creating sensitivity to funding conditions and interest costs.
Financial Position
Liquidity is robust on an absolute basis with ~$1.30B cash and equivalents and ~$2.16B in cash and short-term investments, yet total debt stands at ~$6.46B (net debt ~ $5.16B). Asset quality and cash-generation metrics show positive operating cash flow ($68.8M) and free cash flow ($30.5M) in QQ4, but leverage and interest burden (interest expense $95.3M) remain meaningful constraints on profitability and flexibility. The company’s valuation metrics imply a premium multiple (P/S ~14.3x; P/B ~3.44x) reflecting growth expectations and the strategic premium assigned to BNPL platforms.
SWOT Analysis
Strengths
Strong gross margin profile (~86.5%) and positive EBITDA despite GAAP net losses
Real-time underwriting capability and pricing flexibility
Large, diversified merchant network and growing cohort engagement
Strategic ecosystem approach with multiple wallets and merchant-channel partnerships (Apple Pay, Shop Pay, Google Pay, etc.)
Positive operating cash flow and improving free cash flow in QQ4 2024
Weaknesses
Significant debt burden (long-term debt ~$6.11B; total debt ~$6.46B) and net debt ~$5.16B
GAAP net loss persists; reliance on securitizations for funding introduces funding-cost risk
High valuation multiples and sensitivity to macro conditions
Profitability trajectory remains contingent on execution of high-beta initiatives
Opportunities
Apple Pay BNPL rollout and broader wallet integrations to scale GMV
Affirm Card expansion and new promotional products (0% deals, Pay in 2/30, adaptive checkout)
International expansion and new merchant solutions to increase take-rate
Improved cohort engagement and per-user spend targeting through data-driven offers
Threats
Funding-cost volatility and securitization market access
Regulatory scrutiny of BNPL models and credit underwriting practices
Intense competition in BNPL and digital payments, including bank-led offerings