What drove the big swing from an operating loss to operating income year over year?

Operating income improved by $122 million, driven by a $123 million increase in RLTC. Sales and marketing fell $37 million, of which $35 million reflected lower enterprise warrant expense as certain tranches finished amortizing. Technology and data analytics costs rose $37 million, largely from infrastructure spending tied to a 44% increase in transactions. Excluding warrant expense, the swing still reflects real operating leverage, but part of the GAAP improvement is attributable to non-recurring-style reductions in warrant amortization.

Is the 0% APR strategy hurting Affirm's economics?

It is reducing yield but management says it is economically sound. Over 95% of 0% APR monthly installment GMV at integrated merchants is merchant-funded, and network revenue as a percentage of GMV for these loans remained stable after adjusting for duration. Interest income fell 46 basis points as a percentage of GMV due to the mix shift, and overall revenue as a percentage of GMV fell 40 basis points. Investors should watch whether the mix shift continues to compress revenue yield faster than volume growth expands the top line.

How sustainable is the funding-cost tailwind?

The tailwind has been significant, with funding costs declining about 109 basis points year over year, contributing 25 basis points of improvement to RLTC as a percentage of GMV. Management expects short-term benchmark rates to decline modestly during FY2026 based on the forward curve, which should continue to help. However, the benefit depends on continued ABS market access and pricing, and a reversal in credit spreads or rates would reduce this support.

Are credit trends deteriorating?

Credit metrics are broadly stable. 30+ day delinquencies excluding Peloton and Pay in X were 2.7%, up 18 basis points year over year but down 7 basis points sequentially. The allowance for credit losses was 5.4% of loans held for investment, consistent with the prior year. Recent monthly installment cohorts are tracking toward roughly 3.5% ultimate net charge-offs, in line with historical cohorts, and recent Pay in 4 vintages are tracking below 1% of GMV in losses. Provision for credit losses rose to $214 million from $153 million, reflecting loan book growth.

What does the potential deferred tax asset release mean for investors?

If Affirm continues its earnings trajectory, management expects there may be sufficient positive evidence to release a significant portion of the U.S. deferred tax valuation allowance by the end of fiscal 2026. Such a release would typically produce a large one-time GAAP income tax benefit, boosting reported net income in that period without reflecting operating cash generation. Investors should separate this non-cash benefit from underlying operating performance when evaluating earnings.

AFRM 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 5, 2026. Cited figures are marked; the original filing is the authoritative source.

Affirm Holdings (AFRM) reported fiscal Q2 2026 results (quarter ended December 31, 2025) that showed strong top-line growth and a meaningful step-up in profitability.

GMV rose 36% to $13.8 billion^a, total revenue grew 30% to $1,123 million, and Revenue Less Transaction Costs (RLTC) grew 29% to $543 million. GAAP operating income swung to $118 million (a 10.5% margin) from a $4 million loss a year earlier, and net income reached $130 million, up from $80 million. Adjusted operating margin expanded to 30.0% from 27.4%.

Much of the GAAP improvement reflected a $35 million^b decline in enterprise warrant expense, while funding costs fell about 109 basis points year over year to 6.2%, a key tailwind to unit economics. Growth was broad-based but leaned on Affirm Card and 0% APR products. Direct-to-consumer GMV grew 52% to $4.3 billion, with Affirm Card GMV up 159% and active cardholders at 3.7 million.

The 0% APR mix rose to 32% of GMV, which pressured interest yield and total revenue as a percentage of GMV, which fell 40 basis points to 8.14%. Credit metrics were stable: 30+ day delinquencies excluding Peloton and Pay in X were 2.7%, up 18 basis points year over year but down sequentially, and the allowance for credit losses was 5.4% of loans held for investment. Management guided FQ3 2026 GMV to $11.00^c–11.25 billion and full-year FY2026 GMV to $48.30–48.85 billion, and said a significant release of the U.S. deferred tax valuation allowance may occur by fiscal year-end if earnings momentum continues.

For investors, the key questions are whether the 0%^d APR strategy can sustain volume growth without eroding yields, how durable the funding-cost tailwind is given expected modest rate declines, and whether the deferred tax asset release and enterprise warrant roll-off will flatter GAAP earnings relative to underlying operating performance. Note that this 8-K furnishes the shareholder letter under Item 2.02 and is not deemed filed for Section 18 purposes.

02—Key points

Key Highlights

GMV grew 36% year over year to $13.8 billion, accelerating from 35% growth in the prior-year period; Affirm Card GMV rose 159% to $2.2 billion.
Total revenue grew 30% to $1,123 million, while RLTC grew 29% to $543 million, with RLTC at 3.93% of GMV, at the high end of the 3–4% long-term target.
GAAP operating income was $118 million (10.5% margin) versus a $4 million loss a year ago; net income rose to $130 million from $80 million, though the improvement was aided by lower enterprise warrant expense.
Adjusted operating income rose 42% to $337 million, and adjusted operating margin expanded to 30.0% from 27.4%.
Average annualized cost of funds fell to 6.2%, down about 109 basis points year over year, supported by a ~5.96% all-in ABS pricing in the November 2025 static securitization.
0% APR products reached 32% of GMV (including Pay in X), pressuring interest yield and revenue as a percentage of GMV, which declined 40 basis points to 8.14%.
FY2026 guidance calls for GMV of $48.30–48.85 billion, revenue of $4,086–4,146 million, and adjusted operating margin of 27.4–28.1%; management flagged a possible significant U.S. deferred tax valuation allowance release by fiscal year-end 2026.

03—Questions

Frequently Asked Questions

What drove the big swing from an operating loss to operating income year over year?
Operating income improved by $122 million, driven by a $123 million increase in RLTC. Sales and marketing fell $37 million, of which $35 million reflected lower enterprise warrant expense as certain tranches finished amortizing. Technology and data analytics costs rose $37 million, largely from infrastructure spending tied to a 44% increase in transactions. Excluding warrant expense, the swing still reflects real operating leverage, but part of the GAAP improvement is attributable to non-recurring-style reductions in warrant amortization.
Is the 0% APR strategy hurting Affirm's economics?
It is reducing yield but management says it is economically sound. Over 95% of 0% APR monthly installment GMV at integrated merchants is merchant-funded, and network revenue as a percentage of GMV for these loans remained stable after adjusting for duration. Interest income fell 46 basis points as a percentage of GMV due to the mix shift, and overall revenue as a percentage of GMV fell 40 basis points. Investors should watch whether the mix shift continues to compress revenue yield faster than volume growth expands the top line.
How sustainable is the funding-cost tailwind?
The tailwind has been significant, with funding costs declining about 109 basis points year over year, contributing 25 basis points of improvement to RLTC as a percentage of GMV. Management expects short-term benchmark rates to decline modestly during FY2026 based on the forward curve, which should continue to help. However, the benefit depends on continued ABS market access and pricing, and a reversal in credit spreads or rates would reduce this support.
Are credit trends deteriorating?
Credit metrics are broadly stable. 30+ day delinquencies excluding Peloton and Pay in X were 2.7%, up 18 basis points year over year but down 7 basis points sequentially. The allowance for credit losses was 5.4% of loans held for investment, consistent with the prior year. Recent monthly installment cohorts are tracking toward roughly 3.5% ultimate net charge-offs, in line with historical cohorts, and recent Pay in 4 vintages are tracking below 1% of GMV in losses. Provision for credit losses rose to $214 million from $153 million, reflecting loan book growth.
What does the potential deferred tax asset release mean for investors?
If Affirm continues its earnings trajectory, management expects there may be sufficient positive evidence to release a significant portion of the U.S. deferred tax valuation allowance by the end of fiscal 2026. Such a release would typically produce a large one-time GAAP income tax benefit, boosting reported net income in that period without reflecting operating cash generation. Investors should separate this non-cash benefit from underlying operating performance when evaluating earnings.

04—Continue

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