Editor's Note: This story was updated to include a response from Affirm regarding the short report.

Affirm Holdings Inc. (AFRM) has been on a tear lately, handing investors roughly 30% gains over the past year. Analysts are throwing around price targets suggesting another 30-40% upside, and retail sentiment is getting positively bubbly. But Kerrisdale Capital just dropped a short report that basically says the whole thing is a mirage built on shaky credit.

The report doesn't mince words. Kerrisdale calls Affirm a "Buy Now, Cry Later" story and argues the buy-now-pay-later darling is running the same subprime playbook that has torched lenders for decades. The stock was up about 3% by 10 AM Wednesday, but Kerrisdale thinks investors are dramatically underestimating what could go wrong.

Growth Built on Riskier Borrowers

Here's the crux of Kerrisdale's argument: Affirm's explosive growth looks impressive until you peek under the hood. GMV has been growing at a roughly 30%+ compound rate since 2022, which sounds great. But the short seller says that growth is increasingly coming from lending to weaker borrowers at what they describe as "eye-watering interest rates."

According to the report, Affirm's average loan yields now sit north of 30%, with a meaningful chunk of revenue tied to high-APR products. Kerrisdale's take? This isn't "democratizing credit" like Affirm claims. It's targeting financially fragile consumers with expensive loans, a strategy that tends to work beautifully until economic conditions shift and it suddenly doesn't.

When MarketDash reached out, Affirm declined to comment on the report and pointed to its company fact sheet instead.

Thin Cushions on a Levered Balance Sheet

The short thesis gets more uncomfortable when Kerrisdale digs into risk management. They estimate Affirm is levered about six times, while loan loss reserves sit at just 1-2% of GMV. That cushion looks awfully thin when you consider that normal loss rates in this business can run closer to 6-7%.

If the labor market softens and delinquencies tick up, Kerrisdale argues the math could deteriorate fast. Growth would stall, credit costs would spike, and the path to sustained profitability would evaporate.

Limited Margin for Error

At current valuations, Kerrisdale sees almost no room for disappointment. In a stress scenario, the firm thinks Affirm could trade closer to book value, implying dramatic downside from today's levels.

With earnings scheduled for February 5 and political scrutiny of high-interest consumer lending intensifying, Affirm is heading into a potentially volatile stretch. It's either going to prove the skeptics wrong or validate Kerrisdale's thesis in spectacular fashion.