Hello, Fintech Friends!

For a second consecutive quarter (and its only second as a public company), Klarna's results failed to meet expectations, sending shares sharply lower and weakening management’s credibility with the market. With last week’s drop, Klarna’s stock is down 68% from its IPO price ($40), and the company’s $5 billion market cap represents a small fraction of its private market peak ($46 billion) set in 2021. 

The Numbers. Although Klarna delivered better gross merchandise volume (GMV) and revenue, fourth quarter transaction margin dollars (revenue less transaction costs) fell notably short of the outlook provided by Klarna in mid-November ($372 million actual versus the $395 million guidance midpoint), contributing to a surprise loss during the quarter. To make matters worse, Klarna’s 2026 forecast for GMV, revenue, transaction margin dollars, and adjusted profit all trailed consensus estimates.        

Fair Financing Blues. Once again, Klarna blamed the shortfall in transaction margin dollars on the rapid expansion of fair financing, its longer duration interest-bearing loans. These loans require immediate provisioning for credit losses, suppressing near-term profitability, while the associated interest income is recognized ratably over the loan’s term, which can span up to 24 months.         

Slowing GMV Growth. Even though GMV exceeded expectations in the fourth quarter, growth of 23% on a like-for-like basis (adjusted for currency translation and divestitures) matched the third quarter's rate, despite acceleration in fair financing and Klarna Card GMV growth. This suggests a slowdown in Klarna’s traditional Pay in 4 loans. Equally or more concerning is Klarna’s 2026 GMV forecast, which implies slowing growth compared to 2025’s exit rate, despite tailwinds from expanded payment service provider (PSP) partnerships that will increase merchant acceptance, a full year of contribution from Klarna’s exclusive partnership with Walmart, increased Klarna Card adoption, and fair financing expansion.

Valuation Gap Widens. Klarna now trades at an even more pronounced discount to its leading BNPL peer Affirm. Klarna's enterprise value-to-next twelve-month revenue multiple of 0.6x compares to 5.1x for Affirm (per Koyfin). Putting aside whether this is justified, one of the most important lessons I’ve learned in the past few years following fintech is the combination of slowing growth and lack of meaningful profitability is never good, and often severely punished by the market. Unfortunately for Klarna shareholders, this seems to be the position they find themselves in today.

Growing Pains, or Worse? If management is to be believed, the superior unit economics of fair financing (margins more than twice the company average over the life of the loan) will eventually boost Klarna’s profitability and, presumably, its share price. Klarna bulls also point to its leading network density, long underwriting history, and emerging revenue streams like subscriptions and advertising. Skeptics argue that Klarna is new to longer-duration lending, having shifted from its historical focus on smaller and shorter zero-interest loans in pursuit of higher profits. Its underwriting proficiency in this area remains untested, and it is entering a space where Affirm has already demonstrated success. Time will tell who is right, but for now, the market appears to be setting a low bar for Klarna.

Bob
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Fintech Charts Corner

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