Core Insights - Affirm Holdings Inc (AFRM) is focusing on vertical integration to enhance profitability in the competitive Buy Now, Pay Later (BNPL) industry, amidst regulatory pressures and high interest rates [1][4] Vertical Integration Strategy - The company is taking control of the entire BNPL value chain, including underwriting, loan origination, servicing, and collections, using its own in-house algorithm for creditworthiness assessment [2][9] - This strategy allows for better risk-based pricing, quicker approvals, and greater control over loan performance [2][9] Funding and Profitability - AFRM is increasingly relying on in-house funding, blending its balance sheet with warehouse credit funding to reduce dependence on expensive external capital, thereby improving its net interest margin [3][9] - This structural shift is expected to mitigate the impact of rising costs of funds, which pose challenges to profitability for many BNPL companies [3] Financial Performance - In Q3 of fiscal 2025, AFRM's total revenues increased by 36% year over year, and its adjusted operating margin improved by 860 basis points [4][9] - The Zacks Consensus Estimate for fiscal 2025 earnings indicates a growth of 101.8% compared to the previous year [11] Competitive Landscape - Competitors like PayPal Holdings, Inc. (PYPL) and Block, Inc. (XYZ) have different approaches; PayPal manages the entire value chain efficiently, while Afterpay, part of Block, is less vertically integrated and relies on Block's capital access [5][6] Valuation Metrics - AFRM's shares have increased by 131.9% over the past year, outperforming the industry growth of 41.8% [7] - The company trades at a forward price-to-sales ratio of 5.64, slightly below the industry average of 5.7 [10]

Industry Trend - BNPL (Buy Now Pay Later) services are increasingly used for grocery purchases [1] Potential Risks - Using BNPL for groceries can help cover shortfalls, but carries significant risks [1]