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Affirm Holdings, Inc. AFRM reported first-quarter fiscal 2025 results last week, wherein its earnings beat estimates. Results were aided by improved card network revenues and servicing income, along with growing repeat customers. However, the upside was partly offset by an escalating expense level from a significant increase in provision for credit losses.

Now the question arises whether investors should consider buying the stake or hold tight to their current investments. Let us answer that question by assessing AFRM’s latest quarterly results and long-term growth prospects.

AFRM’s Q1 Results in Brief

Affirm incurred a fiscal first-quarter loss of 31 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 36 cents. The metric was flat year over year. Total net revenues amounted to $698.5 million, which rose 40.7% year over year. The top line surpassed the consensus mark by 5.6%.

Active merchants of AFRM increased 21.4% year over year to 323,000 as of Sept. 30, 2024. Total transactions of 27.2 million soared 45% year over year on the back of a significant rise in repeat customer transactions. Servicing income improved 28.9% year over year to $26 million. Interest income of $377.1 million grew 44% year over year.

For a detailed analysis, please read our blog on fiscal first-quarter earnings: Affirm Holdings Q1 Loss Narrower-Than-Expected, 2025 GMV View Up

Affirm Benefits From Higher GMV

An expanding Gross Merchandise Volume (GMV) continues to benefit merchant network revenues, which remain one of the most significant contributors to Affirm’s top line. Merchant network revenues mainly comprise merchant fees, which are charged to merchant partners (or integrated merchants) based on the GMV processed through the Affirm platform.

Merchant network revenues advanced 26.3% year over year in the fiscal first quarter. Meanwhile, GMV of $7.6 billion increased 35.7% year over year, attributed to strength in general merchandise and travel and ticketing categories. Management anticipates a GMV of more than $34 billion in fiscal 2025, which denotes an increase from the fiscal 2024 reported figure. Therefore, rising GMV is likely to benefit AFRM’s revenues in the days ahead.

AFRM’s Long-term Growth Prospects

Affirm's unique technology and data-driven approach provides it with an edge in accurately pricing and underwriting credits at the point of sale. This capability allows it to craft tailored products such as interest-bearing installment loans that attract a diverse consumer demographic, thereby significantly boosting its GMV. In fiscal 2024, Affirm facilitated $26.6 billion in GMV.

The company's business structure fosters robust network effects that grow stronger with each merchant added to its platform. As Affirm attracts more users, merchants are drawn to adopt its payment solutions to access this expanding consumer pool. This not only bolsters merchant relationships but also increases their customer acquisition rates and the average value of orders. Lowered operational costs and enhanced accuracy in credit decisions due to repeat consumer interactions also contribute to improved efficiency.

Alliances with industry giants such as Amazon and Apple Pay serve as key growth drivers for Affirm. These collaborations grant access to vast consumer markets and help diversify revenues across different sectors. This expanded reach supports Affirm's plans for international growth, particularly its expected entry into the U.K. market in 2025, further boosting long-term prospects.

The burgeoning buy now, pay later (BNPL) sector presents a lucrative opportunity for AFRM to leverage its extensive array of payment solutions. The popularity of installment payments is on the rise as they alleviate the financial burden of lump-sum payments.

AFRM Stock’s Price Performance

Affirm’s shares have gained 116.6% in the past three months compared with the industry’s 19.2% growth. It has also outperformed the broader Zacks Business Services sector’s 18.2% rise and the S&P 500’s 10.3% rally in the said time frame. In comparison with AFRM, two of its industry peers, Mastercard Incorporated MA and Visa Inc. V have gained 13.3% and 18.4%, respectively, in the same time frame.

Three-Month Price Performance

Mastercard Inc adjusted its financial outlook for 2025-2027, projecting slower net revenue growth than anticipated.

The new forecast estimates annual net revenue will grow in the “high-end of low-double-digits,” a noticeable deceleration compared to the high-teens growth expected for 2022-2024, Bloomberg reports.

The company anticipates a compound annual growth rate (CAGR) in the mid-teens for EPS over the next three years, down from its prior expectation of low-20s growth for 2022-2024.

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The company aims for an annual operating margin of at least 55% during the 2025-2027 timeframe, up from a minimum target of 50% for 2022-2024.

Mastercard reported third-quarter net revenue of $7.37 billion, a 13% increase from the previous year, surpassing the analyst estimate of $7.27 billion. Adjusted earnings per share climbed 15% year-over-year to $3.89, beating the expected $3.74 consensus.

Revenue from the payments network increased by 10% year-over-year (11% on a currency-neutral basis), driven by a 10% rise in gross dollar volume, a 17% growth in cross-border transactions, and an 11% boost in switched transactions. Mastercard anticipates net revenue growth in the low teens for the fourth quarter, above the $7.27 billion analyst forecast.

KeyBanc’s analyst Alex Markgraff examined credit and debit card volume data from recent third-quarter reports by Bank of America Corp , Citigroup Inc , JPMorgan Chase & Co , and Wells Fargo & Co .

Overall, the combined credit card volume for these banks grew 5% year-over-year, down from 6% in the previous quarter. Debit card volume increased by 4% year-over-year, slightly below the 5% growth seen in the second quarter.

The banks reported slower growth in card spending but noted consumer resilience continues, with stabilized spending patterns. JPMorgan highlighted customers have mostly exhausted their “cash buffer,” while Bank of America observed consistent payment growth into October.

This modest decline contrasts with forecasts for Mastercard and Visa Inc , for which analysts expected an uptick in card volumes. Despite this, Markgraff believes third-quarter revenue risk remains minimal.

MA Price Action: Mastercard stock is down 1.08% at $523.61 at the last check on Wednesday.

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