Affirm’s Bull Run: More Than Just a Financials Story

The recent surge in Affirm Holdings’ stock price, thanks to Goldman Sachs’ upbeat assessment, has sent shockwaves through the fintech market. As one of the largest Buy Now, Pay Later (BNPL) platforms, Affirm’s growth prospects are being closely watched by investors and analysts alike.

A closer look at Affirm’s latest quarterly results reveals a story that goes beyond just financials. The company’s increasing reliance on interest-bearing loans is a key driver behind Goldman Sachs’ optimistic outlook. This shift marks a significant departure from Affirm’s earlier focus on transactional volumes, allowing the company to diversify its revenue streams and create a more sustainable business model.

Interest income climbed 30% year-over-year in the latest quarter, while the average amount of loans retained for investment increased by 33%. The rapid expansion of the Affirm Card has fueled this growth. By allowing users to borrow against their purchases rather than relying on merchants’ checkout options, card users can make more transactions through the platform, driving up interest income.

Affirm’s Card ecosystem has been a major driver of growth, with active cardholders more than doubling year-over-year to 5.2 million in the quarter. The card attach rate – or the percentage of customers who also have an Affirm Card – reached 19%, up from 17% in the previous quarter and 10% from the year-ago quarter.

This is a critical metric, as it indicates that existing customers are increasingly using the Card to make routine transactions. As more customers use the Card, they will have more opportunities to utilize Affirm’s checkout service, driving up volumes without requiring the company to find new categories of customers. This creates a powerful network effect, where each additional user generates more value for the platform and its investors.

Despite impressive growth numbers, Goldman Sachs’ optimistic outlook is tempered by the fact that Affirm’s penetration remains relatively low. The company is available on only about 80 of the top 250 U.S. e-commerce sites, and just 10% of U.S. e-commerce merchants offer Affirm. This leaves a vast runway for expansion, particularly outside traditional e-commerce channels.

Affirm has shown promising results in its foray into professional services, elective medical, and automotive products, with growth rates of 74%, 85%, and 140%, respectively. The company is also preparing to launch Affirm Edge, a platform that would allow banks and other financial institutions to leverage Affirm’s technology, risk capabilities, and infrastructure.

As investors consider Affirm’s prospects, it’s essential to recognize that the company’s growth story extends beyond just its financials. The bull run is driven by a combination of factors, including a shift in focus towards interest-bearing loans, the power of network effects, and a market still in its infancy.

Earnings are expected to fall in fiscal 2027, but analysts forecast a 45.9% increase in earnings in fiscal 2028. This suggests that Affirm is building a solid foundation for long-term growth, with multiple avenues for expansion and increasing profitability.

In the end, the bull run surrounding Affirm’s stock price reflects more than just a financials story. It speaks to the company’s innovative approach to fintech, its ability to drive growth through network effects, and its vast potential for expansion in markets still largely untapped.