10-Q: Affirm Returns to Profitability with Strong Q1 2026 Growth

Affirm Holdings, Inc. reported a significant return to net income in Q1 2026, driven by robust revenue growth and increased transaction volumes.

Summary

• Achieved net income of $80.7 million for the three months ended September 30, 2025, a substantial improvement from a net loss of $100.2 million in the prior year period.
• Total revenue, net, increased 34% year-over-year to $933.3 million for the three months ended September 30, 2025.
• Gross Merchandise Volume (GMV) grew 42% to $10.8 billion for the three months ended September 30, 2025.
• Active consumers increased 24% to 24.1 million as of September 30, 2025, compared to 19.5 million as of September 30, 2024.
• Transactions per active consumer rose 20% to 6.1 as of September 30, 2025, from 5.1 as of September 30, 2024.
• Operating income was $63.7 million for the three months ended September 30, 2025, a significant turnaround from an operating loss of $132.6 million in the prior year period.
• Sales and marketing expenses decreased by 46% to $78.5 million, primarily due to a $66.3 million decrease in Amazon warrant expense.
• The allowance for credit losses increased to $425.8 million as of September 30, 2025, from $396.9 million as of June 30, 2025.
• The company completed a reincorporation from Delaware to Nevada, effective July 1, 2025.
• A second amended and restated Installment Financing Services Agreement with Amazon.com Services LLC was entered into on November 6, 2025, effective February 1, 2026, which includes a warrant amendment expected to result in $35-$40 million incremental sales and marketing expense as shares vest.

Sentiment

Score: 8

Explanation: The company demonstrated a strong return to profitability, significant revenue and GMV growth, and increased active consumers and transactions. While credit loss provisions and funding costs increased, these are largely proportional to growth and managed within a diversified funding model. The reduction in sales and marketing expense due to warrant vesting is a positive for profitability.

Positives

• Achieved net income of $80.7 million, a significant improvement from a $100.2 million net loss in the prior year.
• Total revenue, net, increased by 34% year-over-year to $933.3 million.
• GMV grew by a strong 42% to $10.8 billion, indicating robust platform activity.
• Active consumers increased by 24% to 24.1 million, demonstrating continued user acquisition and retention.
• Transactions per active consumer increased by 20% to 6.1, showing higher engagement.
• Operating income of $63.7 million marks a substantial turnaround from a $132.6 million operating loss.
• Sales and marketing expenses decreased by 46%, primarily due to lower Amazon warrant expense.
• Gain on sales of loans increased by 87% to $119.0 million, driven by higher loan sale volume and favorable transaction economics.
• Servicing income increased by 53% to $39.7 million, reflecting growth in off-balance sheet loans.
• Strong liquidity with $2.2 billion in cash, cash equivalents, and available for sale securities, and $5.4 billion in available funding debt capacity.

Negatives

• Other income, net, decreased by 44% to $19.4 million, primarily due to a significant reduction in gain on early extinguishment of convertible debt.
• Loss on loan purchase commitment increased by 32% to $71.6 million due to higher loan purchase volume.
• Provision for credit losses increased by 2% to $162.8 million, driven by a 19% increase in the average balance of loans held for investment and a higher allowance rate (5.9% vs 5.6%).
• Funding costs increased by 6% to $110.0 million, due to higher average funding debt and on-balance sheet loan balances.
• Processing and servicing expense increased by 41% to $133.8 million, correlated with increased payment volume and platform fees.
• Technology and data analytics expense increased by 25% to $168.1 million, due to higher amortization of internally-developed software and data infrastructure costs.
• Average Order Value (AOV) decreased to $260 from $279, indicating a shift towards lower-value transactions.
• Accumulated other comprehensive loss increased to $(24.4) million from $(15.1) million.

Risks

• Macroeconomic conditions, including economic uncertainty, inflationary pressures, and elevated interest rates, may continue to impact consumer spending and demand.
• Elevated borrowing costs, despite recent decreases in the federal funds interest rate, may persist and keep transaction costs high.
• Volatile capital markets, influenced by inflation, recession prospects, and tariffs, could affect funding channels and loan performance.
• Exposure to credit risk on consumer loans held for investment, with collectability susceptible to changes in economic and market conditions.
• Subject to regulatory and enforcement authority of the Consumer Financial Protection Bureau (CFPB), with potential for future inquiries and compliance requirements.
• Ongoing legal proceedings, including class action and shareholder derivative lawsuits (Kusnier, Quiroga, Jeffries, Vallieres), could result in defense and settlement costs and diversion of management resources, despite current immaterial accruals.
• Interest rate risk poses an adverse impact on the fair market value of fixed-rate securities and could reduce interest margin on variable-rate debt.
• Credit risk exposure exists in relation to certain off-balance sheet loans sold to third parties under risk-sharing arrangements and retained interests in unconsolidated securitization trusts.
• Credit risk in the event of nonperformance by financial institutions holding cash and the issuers of cash equivalents and available for sale securities.
• Continued recognition of a full valuation allowance against U.S. federal and state and certain foreign net deferred tax assets, although a release is reasonably possible within 12 months if pretax earnings continue.

Future Outlook

The company expects revenue as a percentage of GMV to decline in the medium term to the extent that a greater portion of GMV comes from Affirm Card and other low-AOV offerings. It is reasonably possible that a significant portion of the domestic valuation allowance for deferred tax assets may no longer be needed within the next 12 months if the trend of pretax earnings continues, which would result in a non-cash benefit. The company intends to add necessary funding capacity to support growth objectives as it continues to expand in new international geographies.

Management Comments

• We believe that by using modern technology, strong engineering talent, and a mission-driven approach, we can reinvent payments and commerce.
• Our solutions, which are built on trust and transparency, are designed to make it easier for consumers to spend and save responsibly and with confidence, easier for merchants and commerce platforms to convert sales and grow, and easier for commerce to thrive.
• Our Company is predicated on the principles of simplicity, transparency, and putting people first. By adhering to these principles, we have built enduring, trust-based relationships with consumers and merchants that we believe will set us up for long-term, sustainable success.
• We believe our innovative approach uniquely positions us to define the future of commerce and payments.
• Our expertise in sourcing, aggregating, and analyzing data has been what we believe to be the key competitive advantage of our platform since our founding.
• We believe our proprietary technology platform and data give us a unique advantage in pricing risk.
• We also prioritize building our own technology and investing in product and engineering talent as we believe these are enduring competitive advantages that are difficult to replicate.
• Our solutions use the latest in machine learning, artificial intelligence, cloud-based technologies, and other modern tools to create differentiated and scalable products.

Industry Context

Affirm operates in the highly competitive and rapidly evolving Buy Now, Pay Later (BNPL) and broader fintech industry. The company's focus on transparent, no-hidden-fees payment options differentiates it from traditional credit products. Its expansion into card network revenue and direct-to-consumer products like the Affirm Card reflects a trend towards embedded finance and diversified payment solutions. The macroeconomic environment, including elevated interest rates and recessionary concerns, continues to impact consumer spending and borrowing costs across the industry, requiring companies like Affirm to optimize credit risk and funding strategies. The company's use of AI-powered solutions and proprietary risk models aligns with industry trends emphasizing data-driven underwriting and technological innovation.

Comparison to Industry Standards

• Affirm's model of 'no hidden fees, no deferred interest, no penalties' for consumers contrasts with legacy payment options and some competitors that charge deferred or compounding interest and unexpected costs.
• The company's diversified funding relationships, including warehouse facilities, securitization trusts, variable funding notes, forward flow arrangements, and bank partnerships, aim to provide a resilient capital ecosystem, which is a common strategy among fintech lenders to manage capital market volatility.
• The increase in 0% APR installment loans (74% growth) and the overall GMV growth (42%) suggest strong market penetration and consumer adoption compared to general e-commerce growth rates, though specific industry benchmarks for BNPL growth are not provided in the filing.
• The decrease in Average Order Value (AOV) to $260 from $279 indicates a strategic shift towards more frequent, lower-value transactions, potentially broadening its market appeal beyond high-ticket items, a trend observed in some BNPL providers expanding into everyday purchases.

Corporate Governance

Legal Proceedings

• Kusnier v. Affirm Holdings, Inc.: A putative class action lawsuit alleging materially false and/or misleading statements regarding excessive consumer debt, regulatory arbitrage, data harvesting, public regulatory actions, and vulnerability to interest rate changes. The court dismissed the action with prejudice on September 30, 2025, but plaintiffs filed a notice of appeal on October 29, 2025.
• Quiroga v. Levchin, et al.: A shareholder derivative lawsuit with allegations substantially similar to the Kusnier action, currently stayed by agreement of the parties since May 1, 2023.
• Jeffries v. Levchin, et al.: A shareholder derivative lawsuit with allegations substantially similar to the Kusnier and Quiroga actions, currently stayed by agreement of the parties since August 15, 2023.
• Vallieres v. Levchin, et al.: A shareholder derivative lawsuit with allegations substantially similar to the Kusnier, Quiroga, and Jeffries actions, currently stayed by agreement of the parties since November 30, 2023.
• The aggregate amount or range of losses estimable for legal proceedings is not expected to have a material adverse effect on consolidated financial position, results of operations, or cash flows, and amounts accrued as of September 30, 2025, were not material.

Related Party Transactions

• Commercial agreements with certain subsidiaries of Amazon.com, Inc. (Amazon) involving warrants to purchase Class A common stock. A second amendment to the warrant was entered into on November 2, 2025, setting new exercise prices for shares vesting on or after February 1, 2026, expected to result in $35-$40 million incremental sales and marketing expense.
• Commercial agreement with Shopify Inc. (Shopify) involving warrants, with the asset amortized over an extended benefit period of nine years.

Stakeholder Impact

• Shareholders: Positive impact from return to profitability, strong revenue/GMV growth, and increased active users. Potential for future non-cash benefit from valuation allowance release. Ongoing legal proceedings and their appeal introduce uncertainty.
• Employees: Officer Severance Plan amendment aims to retain qualified employees and provide economic security. Granting of PSUs to executives and employees ties compensation to company financial performance goals.
• Customers (Consumers): Benefit from transparent payment options (no hidden fees, deferred interest, or penalties) and increased purchasing power. Growth of Affirm Card and low-AOV offerings aims to enhance consumer experience and repeat usage.
• Merchants: Benefit from commerce enablement, demand generation, and consumer acquisition tools, leading to increased average order value, repeat purchase rates, and a more satisfied consumer base.
• Creditors/Lenders: Company maintains a diversified funding model with various debt instruments and facilities, indicating a stable approach to capital management. Compliance with all debt covenants as of September 30, 2025.

Next Steps

• Evaluate the impact of adopting new accounting standards (ASU 2023-09, ASU 2024-03, ASU 2024-04, ASU 2025-05, ASU 2025-06) on consolidated financial statements and disclosures.
• Continue to monitor and upgrade internal controls as necessary or appropriate for the business.
• Manage the new Installment Financing Services Agreement with Amazon, effective February 1, 2026.
• Recognize incremental sales and marketing expense of $35-$40 million from the Amazon warrant amendment as shares vest from February 2026 through November 2028.
• Address the ongoing appeal in the Kusnier class action lawsuit to the U.S. Court of Appeals for the Ninth Circuit.
• Potentially release a significant portion of the domestic valuation allowance against deferred tax assets within the next 12 months if pretax earnings continue.
• Add necessary funding capacity to support growth objectives in new international geographies.

Key Dates

Recommendation

The company has demonstrated a significant turnaround, achieving net income after a prior-year loss, coupled with robust growth in revenue, GMV, active consumers, and transactions per active consumer. The substantial reduction in sales and marketing expenses, partly due to warrant vesting, indicates improved operational efficiency. While credit loss provisions and funding costs increased, they appear to be managed in line with portfolio growth. The continued strategic partnership with Amazon and the diversified funding model provide a strong foundation for future growth. The positive financial performance and operational momentum suggest a favorable outlook for investors.

Keywords

Buy Now Pay Later, Fintech, Consumer Lending, SEC 10-Q, Financial Technology, Affirm, AFRM, Quarterly Earnings, Gross Merchandise Volume, Active Consumers, Credit Losses, Securitization, Convertible Notes, Amazon Partnership, Risk Management, Corporate Governance