Here is a fun thing about markets: a company can do almost everything right and still watch its stock slide. That is roughly what happened to Affirm Holdings Inc. (AFRM) on Friday, after the buy now, pay later outfit posted better-than-expected fiscal first-quarter results and raised its growth outlook, only to see shares trade lower.

Why? According to Citizens JMP Securities analyst David Scharf, investors appeared concerned about higher credit-loss provisions tied to the company's testing of new lending categories.

Strong Earnings Fail to Lift Shares

Let's start with the good stuff, because there was plenty of it. Affirm reported first-quarter earnings of 47 cents per share Thursday, beating Wall Street's estimate of 38 cents per share.

Revenue climbed 35% year over year to $1.262 billion, topping the $1.211 billion consensus estimate.

Gross merchandise volume (GMV) rose 34% to $14.4 billion, marking the 12th consecutive quarter of growth of at least 30%. That is a remarkably consistent run.

Direct-to-consumer GMV jumped 55% to $5.1 billion. Active consumers increased 19% to 28.7 million.

Citizens Flags Higher Credit Provisions

Scharf maintained a Market Outperform rating and an $85 price forecast on Affirm despite concerns over higher provisioning.

The analyst said Affirm tested loans in newer lending categories during September, potentially reaching borrowers further down the credit spectrum.

Scharf estimated these experimental loans totaled several hundred million dollars, compared with roughly $10 billion in owned receivables. So this is a small slice of the pie, but it is a slice that makes people nervous.

The company's allowance rate rose sequentially to 6.4%, while credit-loss provisions reached about $259 million.

However, delinquency and loss trends remained stable, according to the analyst.

Scharf believes investors may be reacting to the combination of higher provisioning and more aggressive lending growth.

He also noted that the short-term loans should roll off within months rather than years. In other words, this is a test, not a permanent shift, and the balance sheet should clean itself up fairly quickly.

Affirm Card Growth Supports Bullish Outlook

Meanwhile, the growth engine keeps humming. Affirm Card GMV surged 134% year over year to $3.3 billion, accounting for roughly 23% of total GMV.

The company is also developing new financing options for the card to attract more customers and retail partners.

And there is more in the pipeline: Affirm's Edge platform, which allows banks and credit unions to offer installment payments through their apps, is expected to begin initial pilots in the first half of next year.

Scharf continues to view Affirm as a long-term beneficiary of growing demand for installment payments.

Stronger Guidance Signals Continued Growth

If the quarter was good, the guidance was arguably better. Affirm expects second-quarter revenue of $1.435 billion to $1.465 billion, above the $1.43 billion consensus estimate at the midpoint.

The company forecasts second-quarter GMV of $17.9 billion to $18.2 billion.

For fiscal 2027, Affirm expects GMV to exceed $65.25 billion, implying growth of at least 30%.

Citizens maintained its fiscal 2027 earnings estimate at $2.10 per share, compared with its previous forecast of $2.11.

AFRM Price Action: Affirm Holdings shares were down 2.05% at $66.13 at the time of publication on Friday, according to market data.