Core Insights - Affirm Holdings, Inc. (AFRM) has upgraded its credit risk evaluation by incorporating real-time financial signals into its underwriting process, enhancing the accuracy of credit assessments [1][9] - The new method is currently available for Affirm Card users and will soon be accessible to a broader audience who opt to link their banking data [2] - This approach allows Affirm to assess creditworthiness based on current financial health rather than outdated credit histories, potentially increasing consumer purchasing power [4] Group 1: Affirm's New Underwriting Process - Affirm's upgraded underwriting now includes real-time bank account balances and cash flow trends, moving away from static credit reports [1][9] - The new system aligns credit decisions with real-life financial situations, improving risk assessment and promoting responsible lending [3] - Early results indicate that this richer view of consumer finances can significantly enhance purchasing power [4] Group 2: Market Position and Performance - The upgrade is expected to improve Affirm's credit quality by reducing default risk and expanding its consumer base, leading to increased approvals and revenue growth [5] - Affirm's Gross Merchandise Value rose 42% year over year in Q1 of fiscal 2026, reaching $10.8 billion [5] - Affirm's shares have increased by 25.2% over the past year, outperforming the broader industry and the S&P 500 Index [7] Group 3: Competitive Landscape - Competitors like PayPal and Block, Inc. are also expanding their BNPL services, with PayPal's total payment volume increasing by 8% to $458.1 billion and Block's BNPL gross merchandise volume climbing 17% to $9.7 billion [6] - The competition in the digital consumer lending space is intensifying, highlighting the need for innovative approaches like Affirm's [6] Group 4: Valuation and Earnings Estimates - Affirm's forward price-to-earnings ratio stands at 55.42X, significantly higher than the industry average of 31.72X, indicating a premium valuation [11] - The Zacks Consensus Estimate predicts a 560% surge in Affirm's fiscal 2026 earnings year over year, followed by a 56.8% increase in the subsequent year [11]

Summary of Affirm's Conference Call Company Overview - **Company**: Affirm - **Industry**: Financial Technology (FinTech), specifically focused on consumer credit and installment loans Key Points and Arguments Holiday Trends - Affirm's holiday season performance is strong, particularly in the 0% loan segment, which has seen significant growth, especially among younger consumers prioritizing experiential transactions [4][14] Growth Metrics - Affirm reported a **42% growth in Gross Merchandise Volume (GMV)** last quarter, with the Affirm Card contributing significantly to this growth [5][6] - The Affirm Card accounted for **15 points of growth**, representing about **one-third of total growth** [6][7] - The number of users for the Affirm Card increased by **500,000 quarter-over-quarter**, with a **12% attach rate** [10] 0% Loan Strategy - The 0% loan product has grown **74% year-over-year**, with the number of merchants funding these loans tripling to **40,000** [14] - Affirm emphasizes that 0% loans serve as a powerful marketing tool for merchants, offering a more cost-effective alternative to discounts [15][19] Risk Management and Credit Stress - Affirm can manage credit outcomes effectively, stating that a **50% increase in credit stress** would only lead to a **10% reduction in GMV** [49][50] - The company maintains that it can control credit loss through various levers, such as adjusting underwriting criteria [51] International Expansion - Affirm is optimistic about its international business, particularly in the UK with Shopify, although it acknowledges that it is still early in the process [30][31] Funding and Capital Markets - Affirm had a strong quarter in capital markets, pricing its latest ABS deal at the lowest average yield since 2022, indicating robust demand for its assets [38][41] - The company is focused on maintaining a diverse funding strategy to avoid over-reliance on any single channel [23][24] Margins and Profitability - Affirm has exceeded its adjusted operating margin outlook, with **incremental margins** showing strong performance, sometimes exceeding **100%** [34][35] - The company is committed to investing in growth while also focusing on improving GAAP profitability [36][37] Future Outlook - Affirm is exploring the potential for a broader banking experience but remains focused on its core credit products due to significant growth opportunities [55][56] - The company anticipates participating in the emerging trend of agentic commerce, which could enhance its market presence [58] Additional Important Insights - Affirm's approach to underwriting and credit management is designed to ensure consistent and repeatable credit outcomes, which is crucial for maintaining investor confidence [39][40] - The company is aware of the challenges in consumer banking and is open to addressing them in the future, but current priorities lie in enhancing its existing product offerings [57]