To The Moon

$Affirm Holdings, Inc.(AFRM)$

(NASDAQ: AFRM) is a leading Buy Now, Pay Later (BNPL) financial technology company that provides point-of-sale financing solutions. The company generates revenue primarily through merchant fees, consumer interest income, and servicing fees.

Following the earnings release In Feb 25, Affirm's stock surged by 30% to $83 Analysts from Mizuho Securities and J.P. Morgan expressed optimism, raising price targets and maintaining strong ratings.

Affirm Holdingsfaces new competition as Klarna announced a partnership with OnePay to offer installment loans at Walmart Inc. (NYSE: $Wal-Mart(WMT)$). With this exclusive agreement, Affirm will no longer provide installment loan services for Walmart, a role it had held since 2019.

AFRM shares were down 9.35%, trading at $43.48.

Earning Overview

​Affirm Holdings, Inc. (NASDAQ: AFRM) reported its fiscal second quarter 2025 earnings on February 6, 2025, for the period ending December 31, 2024. The company achieved earnings per share (EPS) of $0.23, surpassing analysts' expectations of a $0.21 loss. Revenue rose by nearly 47% year-over-year to $866.4 million, exceeding forecasts. The active customer base grew by 19% to 21 million, with transactions per customer increasing over 20% to 5.3. Gross merchandise volume (GMV) reached $10.1 billion, marking a 35% increase that exceeded forecasts.

CEO Max Levchin attributed the success to an outstanding holiday shopping season and noted that the company is close to achieving positive operating income ahead of schedule. The operating loss was significantly reduced to $4.3 million from $172.2 million the previous year.

Fundamental Analysis

Despite the loss of Walmart, Affirm recently extended its exclusive partnership with Shopify through 2028, securing a three-year agreement. The company maintains strong relationships with Shopify and Amazon, both of which hold long-term warrants for AFRM shares, signaling a deeper strategic alignment compared to its more transactional relationship with Walmart.

Affirm remains a leader in subprime and near-prime credit underwriting, with capabilities comparable to top financial institutions like Capital One. Its consumer-friendly approach, e-commerce focus, and innovative BNPL solutions position it well for future growth, according to Nance.

Noted that BNPL adoption continues to rise, particularly among younger consumers who prefer installment financing over traditional credit cards. However, Walmart’s pattern of switching credit providers—having previously ended agreements with Synchrony and Capital One—raises concerns about partner concentration risks and competitive pressures in the BNPL space.

Affirm’s cash flow from operations relative to sales has been improving, and its return on invested capital (ROIC) has also increased, now at -2.1%. Over time, this could move toward the 20–30% range, thanks to Affirm’s capital-light business model.

Since Affirm originates BNPL installment loans but sells them to third-party investors, it recycles capital efficiently, allowing it to scale without tying up significant resources. As the BNPL market continues to expand, this model positions Affirm well for sustainable growth.

Guidance

(NASDAQ: AFRM) reported strong financial performance and updated its guidance for the remainder of the fiscal year. The company raised its full-year revenue forecast to a range of $3.13 billion to $3.19 billion, surpassing previous estimates of $3.09 billion. Additionally, Affirm projects its gross merchandise volume (GMV) for fiscal 2025 to exceed $34 billion. The company also anticipates achieving GAAP operating profitability by the fourth quarter of fiscal 2025.

Free Cash Flow

Looking at Affirm’s cash flow from operations as a percentage of sales, there’s been a significant improvement since 2023, now reaching 28%. This suggests that the company is transitioning into a more stable financial position. With cash flow turning positive, Affirm no longer needs to rely on low-margin deals to sustain growth.

The exact impact on Affirm’s cash flow from operations relative to sales remains uncertain, but it's clear that the company’s revenue growth rate will likely slow in the short term. However, in the long run, Affirm's business model continues to offer significant value to both merchants and customers.

• Operating Activities: Net cash used in operating activities was approximately $193.13 million.

• Investing Activities: Net cash used in investing activities totaled $20.25 million.

• Financing Activities: Net cash provided by financing activities amounted to $1.27 billion.

These figures indicate that while Affirm is investing in its operations and growth, it is currently experiencing negative cash flow from operations. However, the substantial cash inflow from financing activities suggests strong investor support, providing the company with resources to fund its initiatives.

Risks and Challenges

Assessing Affirm’s Growth & Impact of Walmart Loss

Over the past five years, Affirm has demonstrated remarkable revenue growth, with an acceleration since 2023. However, investors were previously concerned about a slowdown in growth, which has since rebounded to 46.6% YoY—a strong performance.

That said, the loss of Walmart as a partner is expected to negatively impact revenue growth. Walmart is a massive retailer that contributed significantly to Affirm’s customer acquisition. Without this partnership, Affirm could face slower growth.

Profitability Challenges

Despite strong revenue growth, Affirm has struggled to achieve consistent profitability. High customer acquisition costs and marketing expenses limit margins. The recent loss of the Walmart partnership could slow revenue growth and impact Affirm’s financial projections.

Economic Downturn & Credit Risk

BNPL companies lend money upfront and get repaid over time, meaning Affirm takes on credit risk. In an economic downturn or rising unemployment scenario, consumers may struggle to make payments, increasing default rates and affecting Affirm’s profitability. The Federal Reserve’s interest rate policies directly impact Affirm’s financing costs, making borrowing more expensive for the company and its customers.

Competitive Pressure in BNPL Market

The BNPL industry has become increasingly crowded, with major competitors like Klarna, Afterpay (owned by Block), and PayPal’s Pay in 4. Traditional financial institutions and credit card companies are also integrating installment payment options, intensifying competition.

Walmart’s switch to Klarna highlights the competitive nature of the industry, where major retailers seek the best possible terms. Larger players, such as Apple Pay Later and PayPal, have vast user bases and established trust, making it harder for Affirm to differentiate itself.

Valuation

Goldman Sachs analyst Will Nance reaffirmed a Buy rating on AFRM and raised the price target from $50 to $56 on Monday. However, just a day earlier, he had lowered the price forecast from $90 to $50, estimating Walmart’s contribution to Affirm’s 2024 Gross Merchandise Volume (GMV) at approximately $2.2 billion (7% of total GMV).

Following this, Affirm issued an 8-K filing, clarifying that Walmart accounted for 5% of GMV and 2% of operating income, lower than the analyst’s previous 5-10% GMV and 10-19% operating income impact estimates.

This suggests that Walmart’s exit will have a smaller financial impact than initially expected, as the partnership had lower profitability and Walmart has a history of frequently switching credit providers.

Following the recent news, Affirm’s stock dropped by double digits, bringing its price-to-free-cash-flow ratio down to 23.5, the lowest in six months and among the lowest in the past two years.

After updating my discounted cash flow (DCF) valuation model, I revised my projections and applied a roughly 10% reduction in expected free cash flow from 2025 to 2034. As a result, my estimated intrinsic value per share decreased from $84–$85 to $79.

Despite this adjustment, Affirm’s stock—currently trading at $45 per share—still appears undervalued based on my analysis. While the loss of the Walmart deal increases risk, I believe there is sufficient margin of safety to consider Affirm a buy at current levels.

Market sentiment

It's disappointing news for Affirm (AFRM) investors, as the company has lost its exclusive Buy Now, Pay Later (BNPL) partnership with Walmart. In this article, I'll reassess Affirm's stock in light of these developments, updating my discounted cash flow (DCF) valuation model accordingly. By analyzing these changes, I'll determine whether Affirm remains a worthwhile investment or if losing the Walmart deal makes it a stock to avoid.

For consumers, Affirm enables purchases they might otherwise have to save up for—for example, an 18-year-old who just got their first job and wants to buy a PlayStation 5, which costs around $400–$500. Without Affirm, they might have to wait until they receive multiple paychecks. With Affirm’s installment plans, they can buy the console now and pay for it over several months.

For businesses, Affirm helps secure sales immediately rather than waiting for potential buyers to save up, reducing the risk that consumers change their minds and spend their money elsewhere. This win-win dynamic between merchants and customers remains a long-term growth driver for Affirm.

Was the Walmart Deal Actually Beneficial?

Despite the loss, Walmart is known for negotiating aggressive terms with its partners, often making deals less profitable for them. Affirm differs from traditional Walmart suppliers because it provides a service rather than physical products. Still, Walmart’s scale allows it to push for highly favorable terms, which may have made the relationship less lucrative for Affirm.

Losing Walmart might actually be a positive signal for investors—indicating that Affirm’s management is unwilling to accept deals that compromise profitability. Many growth companies have suffered by prioritizing major partnerships over financial sustainability.

For example:

• Rivian (RIVN) made a highly favorable deal with Amazon for electric delivery vans, benefiting Amazon but straining Rivian.

• Plug Power (PLUG) secured agreements with both Walmart and Amazon that ultimately eroded shareholder value, leading to a 95% decline in the company’s stock over three years.

Affirm’s decision to walk away from unfavorable terms suggests a more disciplined approach to growth, prioritizing long-term profitability over short-term revenue boosts.

Conclusion

The loss of Walmart as a BNPL partner will undoubtedly affect Affirm’s short-term growth. However, this could be a strategic move that ultimately strengthens the company’s financial health. Affirm appears to be focusing on sustainable growth rather than securing deals at any cost.

While the impact on future revenue remains to be seen, the company's improving cash flow suggests that it is in a better position to make smarter, more profitable partnerships moving forward. Investors should watch how Affirm adapts in the coming quarters, but this may not be the disaster it initially appears to be.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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