UBS Maintains “Neutral” Rating on Affirm (AFRM.US) After Q4 Results: Both GMV and Profit Exceed Expectations, But GMV Growth Guidance Slows by 12%

According to information from Zhitong Finance APP, UBS recently released a research report providing a brief review of Affirm Holdings (AFRM.US) Q4 FY2025 financial results and an outlook for FY2026. Key indicators such as Gross Merchandise Volume (GMV) and Revenue Less Transaction Costs as a percentage of GMV (RLTC) performed excellently. Taking into account the overall business performance and risks, UBS maintains a “Neutral” rating on Affirm.

The bank believes that Affirm’s core indicators continue to perform strongly and exceed expectations, with GMV growth for FY2026 expected to exceed 26% (compared to -38% in FY2025). Affirm’s overall business maintains a positive development trend, with GMV, RLTC, and Adjusted Operating Income (Adj. Op. Income) all far surpassing market expectations.

Operational highlights for the quarter include: 1. 0% APR loans: up 93% year-on-year (compared to 44% in Q3 FY2025), thanks to merchants continuously observing improved conversion rates from such loans; 2. Top merchant/platform partnerships: the top five merchant/platform partners contributed about 46% of GMV, with this portion of GMV growing 41% year-on-year; 3. Funding partner demand: Gain on Sale from loan sales performed strongly, about 30% higher than market expectations, fully demonstrating robust demand from funding partners.

Looking ahead, the company expects the lower bound of its GMV growth guidance to slow by 12%, as Affirm will terminate direct cooperation with a major enterprise partner at the end of Q1 FY2026. Excluding the impact of this client loss (which contributed about 5% of total GMV in the second half of 2024), the slowdown in the lower bound of growth guidance would narrow to about 8%.

In terms of profitability, thanks to a positive financing market environment, stable business execution, and an increased proportion of 0% APR installment payments (users of such loans have an average FICO credit score 40 points higher than Affirm’s overall user base), the company has benefited in both credit loss provisions and funding costs. As a result, Affirm’s most important performance indicator—RLTC—continues to exceed the company’s medium- to long-term guidance of 3%-4%. Considering that the RLTC margin for FY2026 is expected to remain around 4%, these favorable factors are likely to continue to play a role in FY2026.

Additional Views on Affirm

The bank believes that Affirm is a leading player in the Buy Now Pay Later (BNPL) sector, partly due to its diversified and flexible business model—whether in terms of loan size (e.g., short-term “X installment” products and long-term loans) or profit model (i.e., achieving unit economics through a combination of merchant fees and consumer payments), this advantage is evident.

In addition, the bank believes that Affirm maintains solid partnerships with several core U.S. e-commerce platforms and retailers, such as Amazon (AMZN.US), Shopify (SHOP.US), Apple (AAPL.US), Target (TGT.US), Expedia (EXPE.US), Booking (BKNG.US), Costco (COST.US), etc., giving it a significant market position advantage.

The bank remains optimistic about the company’s strengths and growth potential. As long as unit economics remain stable, Affirm can achieve growth by launching new products, expanding partnerships, and implementing go-to-market (GTM) plans, such as Apple Pay (initially covering only the U.S. e-commerce sector, with potential for further expansion in the future), Affirm credit cards, business-to-business (B2B) operations, and international business (already launched services in the UK in cooperation with Shopify), etc.

However, after weighing the above advantages against other risk factors, the bank still maintains a “Neutral” rating on Affirm. Key risk factors to watch include: a certain degree of partner concentration risk (Amazon and Shopify together contribute over 35% of GMV), competition from large-scale BNPL providers (such as PayPal BNPL, Afterpay, Klarna, etc.), an excessively high proportion of discretionary e-commerce business and consumer credit risk exposure, as well as the current high valuation—which requires the company to achieve sustained compound growth on an already large business scale to support its valuation level.