Mind Affirm’s GAAP… It Only Misleads

Core Insights - Affirm Holdings has reported positive GAAP net income for the first time since fiscal 2019, which may mislead investors regarding its financial health [9][5] - Despite top-line growth, the company continues to experience negative Core Earnings and significant cash burn, indicating underlying financial instability [4][11] - The stock valuation implies unrealistic growth expectations, suggesting a potential decline in stock price [7][31] Financial Performance - In fiscal 4Q25, Affirm's revenue and gross merchandise volume (GMV) grew by 33% and 43% year-over-year, respectively [8] - For the full fiscal year 2025, revenue and GMV increased by 39% and 38% year-over-year [8] - Affirm reported an operating loss of -$87 million in fiscal 2025, while generating $149 million in non-operating income, leading to positive GAAP net income [12][11] Profitability Analysis - Affirm has not achieved positive operating profit or Core Earnings since fiscal 2019, raising questions about the sustainability of its reported GAAP profits [11][13] - Total operating expenses in fiscal 2025 were 103% of revenue, contributing to negative operating income [15] - The company has burned through a cumulative $5.1 billion in free cash flow (FCF) from fiscal 2020 to fiscal 2025 [17] Market Position and Competition - Affirm's stock price suggests it would need to grow GMV to nearly two-thirds of Amazon's fiscal 2024 GMV to justify its current valuation [28] - Compared to competitors like PayPal, Affirm lacks scale and competitive advantages, which impacts its profitability [21][25] - The buy now pay later (BNPL) market is highly competitive, with Affirm and Klarna struggling to generate profits compared to larger financial institutions [22][24] Valuation Concerns - Current stock price implies that Affirm's revenue would need to reach $42.8 billion by fiscal 2035, which is 13.3 times higher than fiscal 2025 revenue [27] - Alternative scenarios suggest significant downside risk, with potential stock values ranging from $28 to $45 per share based on different growth assumptions [31][33] - Affirm's economic book value is estimated at -$2 per share, indicating that equity investors may not see positive economic earnings under normal operations [36]