After earnings exceed expectations, Affirm's stock experiences a 34% increase, marking its best day in three years.

• Affirm shares surged Thursday following a beat on the top and bottom lines.
• While analysts predicted a loss of 51 cents per share, the company reported a lower loss of 14 cents per share.
• The stock is experiencing its third-largest rally since its IPO in January 2021 and is currently on track for its best day in almost three years.

On Thursday, shares of the buy now, pay later loans provider soared 34% and were on track for their best day in almost three years, after the company beat on the top and bottom lines in its earnings report.

If the rally occurs, it will be the third-largest rally for the stock since its IPO in January 2021. Currently, the stock is trading at $42.17 in early afternoon.

Affirm reported a 48% increase in revenue in the fiscal fourth quarter, reaching $659 million, and a narrower-than-expected net loss of $45.1 million, compared to a loss of $206 million in the same period a year ago. The company beat revenue estimates.

LSEG's polled analysts forecast revenue of $625 million for the current quarter, while Affirm expects revenue to fall between $640 million and $670 million.

Max Levchin, CEO, announced in a letter to shareholders that the company aims to achieve operating profitability on a GAAP basis by the end of the fiscal fourth quarter in 2025.

On Thursday, Mizuho's analysts deemed Affirm's fourth quarter as a "killer quarter" and stated that achieving GAAP operating income-positive will be a significant milestone.

Despite the 14% decline in Affirm shares for the year, the Nasdaq has risen by 18%. However, the stock has shown recent growth, increasing by 50% in August. Federal Reserve Chairman Jerome Powell indicated on Friday that lower interest rates may be implemented as early as September.

In a note last month, Bank of America analysts stated that rate cuts would positively impact Affirm's funding costs and increase profits on loan sales. The company recently raised its merchant interest rate cap from 30% to 36%, which analysts predict will continue to boost yields and drive growth in gross merchandise volume.

Affirm's total addressable market could increase by $12 billion with the launch of a new Pay partnership, according to Mizuho's projections.

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