Affirm (AFRM) Q1 2027 earnings review
Affirm raises its full-year plan, while credit reserves climb
Affirm, the buy-now-pay-later lender, expanded its card and checkout volume while credit reserves and borrowing costs ticked higher. Total spending on the platform rose 34% from a year ago to $14.4 billion, and operating profit nearly tripled on lower employee stock pay. Chief executive Max Levchin raised the full-year volume floor by $1.25 billion, more than double the first-quarter beat.
| Gross merchandise volume (GMV) | $14.4B +34% from a year ago |
|---|---|
| Revenue | $1,262M +35% from a year ago |
| Operating margin | 14.8% 6.8% a year ago |
| Full-year GMV outlook | Raised $1.25B floor now >$65.25B (+30%) |
⚖️ Verdict: 🟢 Bullish
The story got better because Affirm Card doubled without cannibalizing regular store checkout, which grew 22% by our math, and management lifted the full-year outlook across volume and margins. One caution: the loan loss allowance jumped from 5.9% to 6.3% of loans held, and borrowing costs rose from last quarter as benchmark interest rates increased.
The question now is whether the new AI approval model is adding safe borrowers or masking early credit strain behind a growing loan book. If the new borrowers are as reliable as past cohorts, the 6.3% reserve ratio will level off; if looser approvals are bringing in weaker credit, delinquencies will keep rising above prior-year levels. Next quarter's holiday delinquency rate and allowance ratio will tell.
🐂 Bull Case
Affirm Card Grows Without Cannibalizing Checkout
Affirm Card, a debit card that lets shoppers turn purchases into installment loans, is the main growth driver for the buy-now-pay-later lender. Chief executive Max Levchin said a new card risk model lets the company "reward Affirm's more responsible users with more purchasing power, unlocking more Card GMV without sacrificing unit economics". Critics worried that card spending merely replaces regular online checkout loans, which carry higher merchant fees.
- Card gross merchandise volume (GMV, total spending on the platform): $3.3 billion, up 117% from a year ago and now 23% of total volume
- Card attach rate (share of active shoppers who hold the card): 21%, up 2 percentage points from last quarter
- Volume outside direct-to-consumer products: $9.3 billion, up 22% from a year ago by our math
- Network fee revenue as a share of GMV: down 0.24 percentage points from a year ago, offset by interest income rising 0.36 percentage points
This quarter's numbers show the card is adding spending rather than just moving it around. By our math, checkout volume outside direct-to-consumer apps still grew 22% from a year ago, so merchant checkout remains healthy while card usage doubles. Although card transactions earn lower merchant fees, cardholders borrow at interest more often, which lifted total revenue as a share of volume to 8.79%.
What to watch: checkout volume outside direct-to-consumer products in the second quarter. Continued growth above 20% during the holiday shopping season would confirm that the card brings new store transactions rather than cannibalizing online checkout.
Merchant Network Scales Across Software and Wallets
Affirm is adding stores fast enough to reduce its reliance on its biggest retail partners. Active merchants rose 48% from a year ago to 621,000, driven by "the ongoing scaling of a wallet partnership, continued success serving long-tail merchants via ISV partners, and the ramping of our partnership with a large digital invoicing platform". Independent software vendors (ISVs) build Affirm into business software for service providers.
Because smaller stores and software partners grew rapidly, the top five partners generated 40% of total volume, down from 44% a year ago. International markets — Canada and the UK — supplied about 20% of the new merchants added this quarter. Every loan type grew at least 30%, including interest-free monthly loans (up 33%) and short-term Pay-in-X loans (up 32%), where credit losses stayed below 1% of volume.
What to watch: the share of volume from the top five partners in next quarter's release. A reading below 40% during the holiday quarter would show that smaller merchants and software partners are permanently reducing partner concentration.
Lower Stock Pay Lifts Operating Margin
Affirm's operating profit nearly tripled to $187.1 million, lifting its operating margin by 8.0 percentage points from a year ago to 14.8% of revenue. The company kept overhead costs down while transaction revenue grew 35%. General and administrative expenses (overhead, customer service and corporate staff) fell 4.4 percentage points of revenue from a year ago to 11.1%, because stock-based pay in that line dropped by $19.2 million.
Technology and data analytics costs (software engineering and cloud servers) also fell 2.0 percentage points of revenue to 16.1%, and sales and marketing fell 1.5 percentage points to 6.9%. Excluding stock pay, depreciation and partner warrants, operating margin rose 1.8 percentage points to 30.1%. The company raised its full-year operating margin floor by 0.25 percentage points, showing that revenue is growing faster than staff costs.
What to watch: operating margin in the second quarter, when partner warrant costs rise seasonally. Holding the margin within the 11.5–13.5% plan would show that overhead savings can absorb higher partner equity charges.
🐻 Bear Case
Higher Approvals Come With Rising Credit Reserves
Levchin introduced an AI underwriting model that "delivered an incremental 3.4% of end-to-end conversion via significantly higher credit approvals, while keeping credit losses flat". That framing sits uneasily beside the credit tables in the same release, which show delinquencies and loss reserves climbing as the lender approves more shoppers and holds more interest-bearing card loans on its balance sheet.
- Loans 30+ days past due (monthly installment loans, excluding Peloton and Pay-in-X): 2.9%, up 0.09 percentage points from a year ago and 0.35 points from last quarter
- Loan loss allowance as a share of loans held for investment: 6.3%, up from 5.9% both last quarter and a year ago
- Provision for credit losses: $259.4 million, up 59% from a year ago and up 3.1 percentage points of revenue by our math
- Credit loss provision drag on unit economics: reduced revenue less transaction costs by 0.29 percentage points of GMV
This matters because the provision for credit losses ate up most of the quarter's gains from higher interest income and lower funding costs. While third-quarter rises in late payments are partly seasonal, the 30-day delinquency rate has now sat above its prior-year level for four straight quarters, and the reserve cushion jumped 0.4 percentage points in three months.
What to watch: the 30-day delinquency rate and the loan loss allowance ratio in the second quarter. A delinquency reading above last year's 2.7% December rate would indicate that looser AI approval thresholds are bringing in riskier borrowers.
Funding Costs Turn Upward as Benchmark Rates Rise
Affirm relies on banks, bond buyers and asset managers to fund its loans, and falling borrowing costs had been a steady tailwind over the past year. Total funding capacity grew 19% from a year ago to $31.7 billion as the company issued its first five-year asset-backed notes and added a second rating agency, drawing in insurance buyers. Against a year ago, the average annualized cost of funds fell 0.69 percentage points.
However, the sequential trend reversed this quarter. Average funding costs rose 0.27 percentage points from the fourth quarter to 6.0% due to "the increase in benchmark interest rates during FQ1", Affirm said. Although fixed-rate debt covers over 70% of on-balance-sheet funding, the company's full-year outlook embeds higher short-term benchmark rates for fiscal 2027 than in fiscal 2026, ending the sequential funding-cost tailwind.
What to watch: average annualized cost of funds in the second quarter. A second sequential increase above 6.0% would start squeezing the spread between loan interest and borrowing costs.
Risks this quarter didn't answer
Three standing concerns around partner equity dilution, debt buybacks and banking regulation received no resolution or took a step backward in the shareholder letter.
- Partner warrant dilution: launching with a large enterprise partner in the UK will "accelerate the rate at which enterprise warrants are earned in FQ2'27 and beyond", adding to $51.1 million of warrant expense in the first quarter.
- Convertible note buybacks: Affirm repurchased $0 of its 2026 convertible notes for a third straight quarter, leaving $176 million of buyback authority unused days before its November 13, 2026 expiration.
- Bank charter and regulation: the letter gave no update on Affirm's industrial bank charter application or federal buy-now-pay-later rules; any regulatory filing update would move this risk.
💲 Other KPIs
Total platform portfolio — the unpaid balance of all loans Affirm facilitates, both on its balance sheet and sold to outside investors — grew 34.2% from a year ago. By our math, the loan book expanded by $1.4 billion from last quarter, beating the $1.0 billion seasonal build in the same quarter last year and supporting future interest and servicing revenue.
By our math, free cash flow (operating cash flow of $207.1 million minus $62.5 million of property and software additions) fell 54.9% from $320.2 million a year ago. The drop came from a $74.8 million working-capital build in accounts receivable versus a $138.9 million cash inflow a year earlier. Net cash still rose by $402 million from last quarter to $1.9 billion.
Equity capital required — the portion of the total loan book funded by Affirm's own equity rather than outside debt or loan buyers — rose to $988.9 million, or 4.6% of the platform portfolio. That is up from 4.4% last quarter and 3.9% a year ago as on-balance-sheet loans grew 39.8%, though it stays inside management's 5.0% ceiling.
🔮 Guidance
New. The holiday-quarter plan calls for 30.8% volume growth at the middle of the range, down from 34.0% in the first quarter. Affirm has topped the high end of its quarterly volume plan for five straight quarters, beating the middle of the range by an average of 4.9%; if the pattern holds, second-quarter volume would reach $18.9 billion by our math.
Raised. Management lifted the full-year volume floor by $1.25 billion — more than double the $550 million first-quarter beat against the middle of the range — to at least 30.0% growth. By our math, that floor leaves at least $32.8 billion, or 27.8% growth, for the second half of the year, a cautious baseline given the loan book is growing 34%.
New. The plan points to 29.1% revenue growth at the middle of the range, or 8.03% of expected volume, down from 8.79% in the first quarter because holiday volume skews toward promotional loans.
Unchanged as a share of volume, which raises the implied dollar floor because the volume floor moved up. By our math, 8.49% of the new $65.25 billion volume floor equals at least $5.54 billion in full-year revenue (up 30.0%), leaving 27.6% growth for the second half.
New. The outlook calls for 31.3% growth at the middle of the range, or 3.95% of volume, down from 4.30% in the first quarter.
Unchanged as a percentage of volume. By our math, applying 4.16% to the raised volume floor yields at least $2.71 billion for the year, leaving 27.4% growth for the second half and keeping the full year above the 3.75–4.00% medium-term target band.
New. The middle of the range is 12.50%, down from 14.82% in the first quarter because partner warrant expenses rise seasonally in the holiday quarter and a UK partner launch accelerates warrant vesting.
Raised. Management lifted the full-year floor by 0.25 percentage points. By our math, that floor implies an operating margin of at least 15.9% in the second half of the year.
New. The middle of the range is 30.50%, up 0.4 percentage points from 30.1% in the first quarter and 0.5 points above the second quarter of last year.
Raised. The full-year floor moved up 0.25 percentage points. By our math, that leaves a floor of 31.2% for the second half of fiscal 2027.
Unchanged. Affirm still plans to fund less than 5% of the total loan portfolio with its own equity.
New. Up from 341.3 million in the first quarter.
Cut. Lowered by 2 million shares from the prior full-year forecast, implying about 1.8% annual basic share count growth.
New. Up from 351.8 million in the first quarter.
Cut. Trimmed by 1 million shares from the prior outlook.
❓ Key Questions
Why did the credit loss allowance jump to 6.3%?
Levchin said the new AI underwriting model kept credit losses unchanged while boosting approvals. Yet the allowance for credit losses rose from 5.9% of loans held for investment to 6.3% in one quarter. How much of that 0.4-point increase comes from the new model's approvals versus card loan mix?
Which UK partner triggered faster warrant vesting?
The outlook notes that launching with a large enterprise partner in the UK in late Q1 will accelerate enterprise warrant expenses from Q2 onward. Which partner earned these warrants, and how many shares and dollars of expense will vest over fiscal 2027?
Why let the convertible debt buyback window expire unused?
The board authorized buying back up to $176 million of 2026 convertible notes through November 13, 2026, but Affirm spent nothing under the plan for three straight quarters despite holding $3.0 billion in liquidity. Did note holders refuse to sell near par, or did management prefer to hold cash?
What is the unit profit of Affirm Card versus checkout?
Affirm Card reached 23% of total volume and reduced network fees by 0.24 percentage points of volume while lifting interest yields. Does a dollar of Card volume generate more or less revenue less transaction costs than a dollar of integrated merchant checkout volume?