Affirm's Q2 Earnings Beat Underscores Growth but Fails to Address Valuation Concerns

What happened

Affirm Holdings reported Q2 2026 earnings that exceeded analyst estimates, driven by strong gross merchandise volume and revenue growth from higher transactions and repeat customers. This performance aligns with the company's historical trend of scaling its BNPL platform, leveraging network effects and deep merchant integrations as highlighted in the DeepValue report. However, the report critically notes that Affirm trades at over 100x trailing earnings and a 200% premium to intrinsic value, with significant leverage and funding dependencies. The earnings beat, while positive, does not mitigate the elevated credit risks, regulatory uncertainties, or thin margin of safety emphasized in the analysis. Thus, despite operational success, the stock remains overvalued and vulnerable to potential shocks.

Implication

Investors should recognize that Affirm's ability to beat estimates reflects strong execution and ongoing demand in the BNPL market. However, with a P/E ratio of 104x and high debt levels, the stock price already embeds optimistic growth assumptions, leaving little room for error. The persistent risks from sector delinquencies, regulatory changes, and funding costs could quickly undermine profitability if economic conditions deteriorate. This news may boost short-term sentiment, but without a material improvement in credit metrics or a valuation reset, the risk/reward profile remains unfavorable. Therefore, cautious investors should avoid or reduce exposure, awaiting a more attractive entry point or clearer resolution of underlying risks.

Thesis delta

The earnings report reinforces Affirm's growth narrative, consistent with the DeepValue report's acknowledgment of scaling and network effects. However, it does not shift the fundamental concerns about excessive valuation, high leverage, and regulatory exposure that underpin the 'POTENTIAL SELL' stance. The thesis remains unchanged, as the margin of safety is still lacking despite operational improvements.