Klarna’s shares experienced a significant sell-off following the release of its fourth-quarter earnings report, despite exceeding expectations for revenue and gross merchandise volume (GMV). The market reacted negatively to a miss in transaction margins and concerns about near-term profitability, highlighting a valuation reset for the buy-now, pay-later (BNPL) provider.
The Stockholm-based company reported a net loss of $26 million, or $0.19 per share, for the quarter ending December 31, 2025, a substantial decline from the $40 million profit recorded in the same period a year earlier. This result fell short of Wall Street’s expectations of a $0.02 loss per share. Revenue, however, grew 38% year-over-year to $1.082 billion, slightly surpassing analysts’ estimates of $1.07 billion. GMV increased 32% to $38.7 billion.
The core of the market’s disappointment centered on the transaction margin, which came in at $372 million, missing the anticipated $390 million. This shortfall was attributed to increased usage of Klarna’s banking and financing products, which, while driving growth, currently exert pressure on overall margins. Analysts at Morningstar noted that Klarna’s growth in “fair financing” – a key strategic area – improved unit economics but simultaneously compressed margins.
Despite the immediate market reaction, some analysts remain optimistic about Klarna’s long-term prospects. Keefe Bruyette raised its price target on Klarna to $26 from $25, maintaining an ‘Outperform’ rating. Morningstar reaffirmed its estimated fair value of $45 per share and a ‘Narrow’ Economic Moat Rating, suggesting the stock is currently undervalued. The firm believes the current profitability challenges are not indicative of a flawed business model.
Klarna’s active consumer base grew 28% to 118 million, while the number of merchants utilizing the platform increased 42% to 966,000. The company highlighted progress in subscription offerings, with 3.5 million subscriptions currently in trial periods expected to contribute to future revenue streams. Adjusted operating profit for the quarter was $47 million.
A key factor influencing the market’s assessment is Klarna’s strategic shift towards becoming a full-fledged digital bank. While this transition is expected to enhance long-term value, it necessitates ongoing investments and may continue to weigh on short-term profitability. The company’s CEO, Sebastian Siemiatkowski, emphasized this vision in a letter to shareholders, stating Klarna is “building a global digital bank that saves consumers time and money and puts them in control of their finances.”
Credit risk appears to be well-managed. Reservations for credit losses, as a percentage of GMV, decreased to 65 basis points from 72 basis points in the previous quarter. Coverage ratios and the proportion of delinquent loans do not currently indicate a deterioration in the company’s balance sheet.
Looking ahead, Klarna anticipates a slowdown in growth within its fair financing segment during 2026, potentially beginning in the second half of the year. This deceleration is expected to allow the company’s underlying profitability to become more apparent. The company is also focused on expanding its “standard” integration with major payment processors like Stripe and Nexi, with plans to launch similar integrations with Worldpay and J.P. Morgan Payments later this year. This standardization is intended to solidify Klarna’s position as a leading BNPL provider and drive increased adoption among both new and existing users.
The market’s reaction, described by some as a “sell the news” event, underscores the high expectations that were already priced into Klarna’s valuation. The earnings report, while demonstrating strong operational growth, failed to deliver the immediate profitability improvements that investors were anticipating. The expectation gap between reported results and market forecasts proved too wide to overcome, triggering a significant correction in the stock price.
Despite the current challenges, analysts at Morningstar believe Klarna’s long-term prospects remain positive. They anticipate that the company’s strategic investments in its banking infrastructure and fair financing offerings will ultimately drive sustainable profitability and solidify its position in the rapidly evolving BNPL landscape. The firm maintains that the current stock price does not reflect the company’s intrinsic value.
