Affirm Stock Down As Klarna's Buy Now, Pay Later Credit Loss Rises 17%

Affirm Holdings' stock is down 17% in 2025 following a weaker-than-expected revenue forecast despite solid Q3 results, raising concerns about the Buy Now, Pay Later (BNPL) sector amid rising default rates and a contracting economy; however, Wall Street analysts see the stock as undervalued, citing Affirm's industry leadership and partnerships with major retailers like Apple and Amazon, while the company emphasizes the long-term value of its customer base and the success of its 0% interest loan offerings.

Analysis

Affirm Holdings (AFRM) presents a mixed outlook, with its stock declining 17% in 2025 despite a significant 126% rise over the past three years. The company's fiscal third-quarter results were solid, with revenue of $783 million (up 36% year-over-year) meeting expectations and earnings per share of $0.01 surpassing the anticipated loss. Gross Merchandise Value (GMV) also grew 36% to $8.6 billion, exceeding forecasts. However, Affirm issued a weaker-than-expected Q4 revenue guidance of $830 million, $11 million below consensus, which contributed to a 13% stock drop post-announcement, even as its Q4 GMV guidance of $9.55 billion was $350 million above consensus. The company's growth is fueled by partnerships with major retailers like Apple, Amazon, and Shopify, which saw The Affirm Card GMV increase 115% year-over-year. A key strategy involves 0% interest loans, which increased 44% and are intended to boost customer lifetime value, though some analysts note these promotions led to a lower take rate and RLTC margin than forecasted. The broader Buy Now, Pay Later (BNPL) industry has expanded rapidly, at a 55% average annual rate since 2021 to an estimated $560 billion in 2025. This growth is accompanied by concerns over rising loan default rates, as exemplified by Klarna's 17% rise in credit losses, and a January CFPB report indicating nearly two-thirds of BNPL loans went to borrowers with risky credit scores. Affirm finances its growth through securitizing about 30% of its loans and selling loans directly to institutions, including a recent $4 billion deal with Sixth Street. Macroeconomic headwinds, such as a 0.2% contraction in Q1 2025 GDP, further cloud the outlook, potentially increasing pressure on BNPL consumers and providers. Despite these challenges, Wall Street analysts maintain a relatively bullish stance, with an average price target for AFRM at $67.18, suggesting a 29% upside from current levels, citing Affirm's industry leadership and strategic partnerships.

Key Decisions for Investors

• Investors should closely monitor upcoming consumer spending data, BNPL sector credit default rates, and Affirm's Q4 revenue actuals against its subdued guidance, as these will be critical indicators of the company's near-term performance and the impact of macroeconomic conditions.
• Evaluate the sustainability of Affirm's growth driven by 0% APR loans by scrutinizing the impact on its take rate and revenue less transaction costs (RLTC) margin in subsequent earnings reports, particularly in light of a potentially weakening economic environment.
• Consider the dichotomy between the significant analyst price target upside and the prevailing risks, including the 17% year-to-date stock decline, rising industry default rates, and potential for further economic contraction, before adjusting positions in AFRM.