Shares of Affirm Holdings (AFRM) faced a downturn following the release of its third-quarter fiscal year 2025 financial results. Despite showing a mixed performance for Q3, the leading buy now, pay later (BNPL) company’s fourth-quarter guidance failed to meet market expectations. Concerns over broader economic challenges further dampened investor sentiment, leading to a more than 8% drop in AFRM stock during morning trading on Friday, May 9. 

Affirm did see some encouraging signs, particularly with gross merchandise volume (GMV) accelerating toward the end of March and into April. This uptick was led by macroeconomic factors impacting consumer spending patterns. However, management struck a cautious tone, indicating that they expect growth to moderate through the remainder of the quarter, suggesting that the April strength might not be sustainable.

While Affirm did revise its Q4 and full-year FY25 revenue guidance upwards, the revised figures for Q4 fell short of analysts’ forecasts. Affirm now forecasts Q4 revenue between $815 million and $845 million, up from a previous range of $810 million to $840 million. However, the midpoint of the new guidance, at $830 million, missed the consensus estimate of $841 million. Similarly, its full-year revenue guidance was nudged higher to $3.163 billion to $3.193 billion, but again, this modest bump failed to impress investors looking for stronger signals of outperformance.

So, is this a setback, or a setup for opportunity?

AFRM Set to Grow, But Challenges Remain

Despite the market’s lukewarm reaction, there are bright spots in AFRM’s fiscal Q3 performance. Affirm’s GMV continued its upward momentum for the third straight quarter, and credit performance remained within expectations. A big driver of this growth was its 0% APR monthly installment offering, which jumped 44% year-over-year and now accounts for 13% of total GMV.

Moreover, the quality of Affirm’s customer base appears to be improving. In Q3, around 80% of its 0% monthly installment volume came from prime and super-prime borrowers, compared to about 50% for interest-bearing products. This shift is a positive as higher-quality borrowers reduce credit risk and strengthen Affirm’s brand equity.

The company also brought in 1.8 million new consumers during the quarter while maintaining a strong 94% repeat usage rate. New users who started with a 0% APR installment grew over 70% year-over-year, suggesting that this offering is a key on-ramp for onboarding quality customers.

Affirm’s card business also continued to impress. The Affirm Card generated $807 million in GMV in Q3, a 115% year-over-year increase, with around 2 million active users. New features, improved foreign transaction capabilities, and better user experience are paying off. Importantly, the company added a second card-issuing partner and expanding its network.

That said, there are challenges on the horizon. One key concern is Affirm’s partnership status with Walmart (WMT). Although Affirm is still servicing the retail giant, competitor Klarna recently secured an exclusive BNPL partnership through Walmart’s fintech venture, OnePay. This development could gradually phase Affirm out as Walmart leans more heavily on its in-house platform. In that context, Affirm’s recent partnership with Costco (COST) has become more meaningful as a new revenue stream and could counterbalance the risk of losing ground at Walmart.

Another concern is Affirm’s concentrated exposure to major partners. Amazon (AMZN) alone accounted for 23% of GMV during the first nine months of its fiscal 2025. Such reliance on a few key players can be risky. Any shift in those relationships could have an outsized impact on the business.

The Bottom Line

While Affirm is growing well, as reflected by the expansion of its consumer base, steady credit quality, and innovation around its card and 0% APR offerings, it is not without risks. Economic sensitivity, heavy reliance on key partners, and competitive threats all loom large.

Further, the recent dip in AFRM is more like a breather than a breakdown. Affirm stock has seen a strong rally, climbing 12% over the past month and gaining around 42.7% over the last year. That kind of momentum often invites some profit-taking or consolidation.

Currently, Wall Street analysts give Affirm a “Moderate Buy” rating. But for potential investors looking to jump in, it may be wise to wait for a more meaningful pullback before opening a position.