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Affirm Holdings (AFRM) is a fintech company that lets consumers buy products and services now and pay for them over time through its Buy Now, Pay Later (BNPL) platform. Recently, it reported another strong quarter, prompting Goldman Sachs (GS) to increase the stock's target price from $106 to $115. The bank is optimistic, citing robust growth in Affirm's interest-bearing loans, the continuous development of Affirm Card, the Shopify relationship in Australia, and accelerating volumes at Amazon.
AFRM stock is down 7.9% year-to-date, but the price target implies a potential upside of 69%. However, it will need more than one robust quarter for the stock to hit this bullish target.
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It's not just Goldman Sachs that is bullish about Affirm. Recently, many other firms, including Truist Financial, Cantor Fitzgerald, J.P. Morgan (JPM), Needham, Barclays (BCS), and Bank of America (BAC), among others, also increased the target price for the stock. While the stock's mean target price is $99.48, the high end of $124 implies the stock can climb by almost 82% from current levels. Affirm's fiscal fourth-quarter results gave enough reason to be so strongly optimistic.
1. The Interest-bearing Business Is Becoming a Bigger Growth Engine
Affirm is making more business from loans that are generating interest income. The company is not just focused on processing more transactions but is also increasing the amount of money it earns from financing these loans. Notably, 80% of its direct-to-consumer product loans now carry interest. The rapid growth of the Affirm Card is helping drive this shift because Card users can borrow through the platform for their purchases rather than utilizing Affirm at the merchant's checkout.
In its fiscal fourth quarter, interest income climbed 30% year over year (YOY), while the average amount of loans Affirm retained for investment increased by 33%. Similarly, the company is also making money by selling loans to investors. Gains on sales of loans jumped 41%, thanks to a 26% increase in the number of loans sold and better pricing on those sales.
Basically, as Affirm's loan book grows, it has two ways of making money. Affirm is expanding its higher-value lending offerings while maintaining disciplined funding and credit performance, which is resulting in increasing earnings. Net income climbed to $1.6 billion from $69.2 million in the year-ago quarter.
2. Affirm Card Could Make The Network Much Bigger
The continued momentum of the Affirm Card is another reason Goldman Sachs is bullish. Active cardholders more than doubled YOY to 5.2 million in the quarter, while Card GMV surged 124% to $2.8 billion. Direct-to-consumer GMV increased 49% to $4.7 billion, driven solely by Affirm Card. The most interesting number for the period was the card attach rate, or the percentage of Affirm's customers who also have an Affirm Card. It reached 19%, up from about 17% in the previous quarter and 10% from the year-ago quarter. Simply put, more customers who already use Affirm are now adding the Card, giving the company another way to stay connected with those customers and earn revenue from their spending.
On average, each of those card users made roughly $4,000 in Affirm transactions, which is more than twice the amount made by the average Affirm client. This creates a potentially strong growth cycle. As more existing customers use the Card, they will have more opportunities to use Affirm for routine transactions. Goldman Sachs also cited the significant acceleration in Amazon volumes as one of the quarter's highlights. That is significant because Amazon is a big channel for Affirm's checkout service. Stronger volume offers Affirm an additional area of growth without requiring the company to find an entirely new category of customer.
3. The Runway Is Still Much Bigger Than The Current Business
The third factor is likely the most significant for long-term investors. While Affirm's current scale is substantial, its penetration remains relatively low. Active merchants increased 51% YOY to 571,000 at the end of fiscal 2026. Yet Affirm said it is available on only about 80 of the top 250 U.S. e-commerce sites and that just 10% of U.S. e-commerce merchants offer Affirm. This leaves a lot of room for the merchant network to grow. The company is also seeing meaningful growth outside traditional e-commerce. Notably, professional services grew 74%, elective medical increased 85%, and automotive products and services jumped 140% during the quarter. Affirm is also preparing Affirm Edge, which would allow banks and other financial institutions to use technology, risk capabilities, and infrastructure built by Affirm.
Affirm is showing faster growth in key products, improving profitability, expanding its Card ecosystem, and adding merchants while still operating in markets where its penetration is relatively low. While earnings are expected to fall in fiscal 2027, analysts forecast a 45.9% increase in earnings in fiscal 2028. However, it wasn't just this one quarter that made analysts optimistic. Putting it all together, the bull case starts to look like the company is less reliant on just one product or one merchant. The company appears to have several different ways to keep making the network bigger and potentially more profitable from here.
On Wall Street, Affirm stock holds a consensus "Strong Buy" rating. Of the 37 analysts covering the stock, 26 rate it a "Strong Buy," two say it is a "Moderate Buy," and nine rate it a "Hold."
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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