Klarna Stock Tumbles After First Earnings Report. What Investors Should Know.

Klarna Group, the buy-now, pay-later provider, made its public trading debut at the start of September. (Spencer Platt / Getty Images)

Key Points

• Klarna Group reports third-quarter revenue of $903 million, exceeding analyst consensus of $885.5 million and up from $706 million a year earlier.
• Gross merchandise volume in the U.S. increases 43% to $32.7 billion, while global GMV rose 23%, surpassing the prior quarter’s 19% growth.
• The company records a net loss of $95 million in the latest quarter, compared to a $12 million profit in the third quarter of 2024.

Klarna Group made its trading debut with a bang in September. Its third-quarter earnings report, the fintech’s first since going public, was putting investor interest to the test.

The buy-now, pay-later company posted $903 million in revenue, up from $706 million in the same quarter last year. The number also blew past the $885.5 million consensus among analysts polled by FactSet.

The company’s “fair financing” offering has proven popular with customers, and contributed to accelerating revenue in the quarter. The installment loan product allows customers to break up the cost of larger purchases into several fixed monthly payments, typically over a longer span than Klarna’s interest-free options.

Gross merchandise volume value also saw improvement in the U.S., where it increased 43% to $32.7 billion. On a global basis, the metric rose 23%, higher than 19% growth in the prior quarter. The company defines GMV as the total monetary value of all completed purchases over its network over a certain period.

Transaction margin dollars, a measure of total revenue less direct transaction costs, came in at $281 million, down from $316 million in the prior year. While it might seem like cause for alarm, the so-called profitability lag was expected, Klarna said.

Klarna, like most U.S. lenders, is required to set aside upfront provisions for potential credit losses. The company expects to recoup these losses in the fourth quarter, guiding for TMD in the range of $390 million to $400 million.

While the drop appeared to drive shares lower on Tuesday, J.P. Morgan analysts noted that Klarna reported an “encouraging” sequential increase in TMD as a percent of volume.

Furthermore, the company’s announcement of a two-year, $6.5 billion agreement with Elliott Investment Management to support U.S. fair financing growth was a “positive endorsement of Klarna’s underwriting capabilities,” the firm wrote.

Another highlight from the quarter was adoption of the company’s Klarna Card, which serves as an anchor for its broader commerce ecosystem. Since its launch in July, over 4 million consumers have signed up, Klarna said.

The card acts both as both a debit card for instant payments and a credit card to split purchases into installments. CEO Sebastian Siemiatkowski asserted earlier this year that it was meeting market demand for “a fairer, more transparent way to pay.”

Shares fell 8.3% on Tuesday. The benchmark S&P 500 index fell 0.9%. Affirm Holdings, often seen as Klarna’s biggest competitor, declined 2.9%.

Expectations have been high since Klarna’s initial public offering earlier this year. Shares ended their first day on the New York Stock Exchange up 15% from the offering price. However, investor enthusiasm has waned since then. Through Monday’s close, the stock was down 24% since Sept. 10, when it ended the session at $45.82.

Rising borrowing costs and competitive pressure from fintechs like Affirm as well as the broader banking sector, where Klarna aims to establish a foothold, have curtailed investor appetite.

The company also faces ongoing scrutiny over customer loan defaults. Klarna made headlines earlier this year when it disclosed a first-quarter net loss of $99 million, partially driven by rising customer credit losses.

It logged a net loss of $95 million in its latest quarter, compared to a profit of $12 million in the third quarter of 2024. However, Klarna asserted that more consumers were “paying on time or even early than ever before,” as realized losses fell to 0.44% of GMV.

While BNPL companies have enjoyed a recent spike in popularity, the business model has been no stranger to criticism. Providers like Klarna generate most of their revenue from merchant fees and interest, but also make money from late fees. Much of the fault-finding has to do with the user base lenders target: typically younger people with lower financial security.

The rise of BNPL services raises concerns about consumer protection, the Richmond Fed wrote in an economic brief earlier this year, adding that BNPL customers “tend to have a riskier credit profile: They are typically younger and less-educated, with higher debt burdens and lower credit scores.”

Just look at Wonga, the British payday loan company that collapsed into administration in 2018 after being accused of predatory lending for years. Klarna acquired BillPay, Wonga’s German payments business, in 2017.

Klarna CEO Siemiatkowski pushed back on these characterizations in 2021, saying comparisons to Wonga made him “emotionally upset.”

For now, Klarna isn’t letting these concerns get it down. Business is booming in the U.S., if the latest earnings report was any indication.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com