$Klarna Group plc(KLAR)$ s Q3 2025 earnings report, its first quarterly results since going public, delivered robust performance that exceeded expectations. Revenue reached $903 million (up 26% YoY), with GMV hitting $32.7 billion (up 23% YoY), both surpassing market consensus. This growth was primarily driven by accelerated expansion in the U.S. market, explosive growth in Fair Financing installment products, and rapid volume growth of the Klarna Card. However, impacted by accounting treatment for installment products (requiring full provisioning of expected credit losses upfront), the company recorded a net loss of $95 million and an operating loss of $83 million, indicating short-term pressure on profitability. Post-market trading saw the stock fluctuate over 9%. We view this as a classic transitional earnings report characterized by "growth-first, profitability-later"—highlights are evident, but flaws are equally apparent.
Key Financial Highlights
Total revenue reached $903 million, up 26% year-over-year (LfL) and 28% on a reported basis, exceeding the FactSet consensus of $885.5 million. This growth was primarily driven by a 51% year-over-year increase in U.S. revenue, which has become the largest single market. Fair Financing's global GMV surged 139% year-over-year, with U.S. GMV growing 244%, contributing to a higher take rate. Regarding business structure, long-term financing rapidly increased its share, while short-term Pay in 4 remained dominant but saw slower growth. The U.S. market now contributes over half of the total.
Gross Merchandise Volume (GMV) reached $32.7 billion, up 23% year-over-year (LfL). Key drivers included U.S. GMV growth of 43% and active users increasing by 32% to 114 million. Klarna Card gained 4 million users within just four months of its July launch, accounting for 15% of global transactions by October. This slightly exceeded expectations, demonstrating strong consumer preference for "transparent, no-hidden-fees" products. Long-term installment and card products are shifting from niche to core offerings, with the platform ecosystem beginning to take shape.
Transaction Margin Dollars reached $281 million, a slight year-over-year decline (from $299 million last year). Fair financing accounting requires advance provisioning for credit losses (Q3 credit loss provisions reached $235 million, doubling), which dragged down short-term gross profit; the actual realized credit loss rate was only 0.44%, indicating manageable risk. This outcome, weaker than market consensus (which had anticipated sequential improvement), was the most contentious point this quarter.
Adjusted Operating Loss: $14 million (compared to a loss of $4 million in the same period last year). Operating expenses remained flat (reflecting efficiency gains), but credit loss provisions increased significantly. Management emphasized this was a "planned" lag and expects a significant rebound in Q4. Net loss of $95 million (compared to a net profit of $12 million in the same period last year). This was primarily due to credit loss provisions and long-term accounting treatments; excluding these items, the loss narrowed substantially.
Earnings Guidance
Management provided clear range guidance for Q4:
GMV: $37.5–38.5 billion (above consensus of $37.3 billion)
Revenue: $1.065–1.080 billion (first time exceeding $1 billion, surpassing consensus of $1.06 billion)
Gross profit from transactions: $390 million to $400 million (up 39% to 42% quarter-over-quarter, exceeding $100 million in incremental growth)
The guidance is notably aggressive, significantly exceeding the average sell-side consensus, reflecting management's strong confidence in accelerated growth and profitability. The narrative logic leans optimistic and proactively reassuring: repeatedly using phrases like "strongest ever," "proof," and "compounds" to reinforce growth certainty, while attributing profit pressures to "accounting timing" rather than uncontrolled risks—aiming to stabilize investor sentiment. We believe this is not empty encouragement, but rather a strong statement grounded in reality. It is supported by the concrete facts that Fair Financing has reached a $6.5 billion sale agreement with Elliott (mitigating external capital risk) and that long-term deferred revenue will be recognized linearly in subsequent quarters.
Key Investment Considerations
Sustainable long-term growth engines: Fair Financing (long-term installment plans) + Klarna Card. The former directly competes with traditional credit cards, offering more transparent and lower-cost consumer finance solutions. It has already captured a significant market share in the U.S. (+244% GMV). The latter combines debit and credit attributes, with 4 million users in just 4 months demonstrating its exceptional product strength and network effects. Traditional Pay in 4 remains the dominant segment but shows significantly slowed growth, with its future contribution gradually being replaced by long-term installment plans and card products. AI marketing and customer service cost reduction serve as supplementary benefits rather than core drivers.
Management's strategy is fundamentally sound: heavy investment in the U.S. market, extended payment terms, and card products align with the broader consumer finance trends of transparency and digitalization. The $6.5 billion loan sale agreement with Elliott was a masterstroke, resolving funding constraints. A potential pitfall lies in insufficient communication regarding credit risk, triggering panic selling every time extended payment terms accelerate. While AI is frequently mentioned, its current application primarily focuses on internal cost reduction rather than establishing a differentiated competitive advantage externally.
In terms of valuation, the current market capitalization stands at approximately $13-15 billion, with projected 2025 revenue of around $4.2-4.3 billion, implicitly implying a 3.5x EV/Sales multiple. If Q4 guidance materializes, full-year transaction gross profit could approach $1.4 billion USD. With further volume growth anticipated in 2026, the valuation implies a 2026 PE ratio of approximately 20-25x (assuming a net profit margin of 15-20%).
Is the market pricing too high? In the short term, yes—investors overreacted to credit loss provisions, triggering a sharp post-market decline. However, in the medium to long term, U.S. long-term penetration remains at just 20%, and Klarna Card's global expansion has only just begun. Its growth ceiling is significantly underestimated.
Comparable Companies: $Affirm Holdings, Inc.(AFRM)$ Faster transaction volume growth but heavier losses and higher valuation; $Block, Inc.(XYZ)$ Cash App ecosystem is more mature but has a lower proportion of BNPL; payment giants like Adyen and PayPal command higher valuations. Klarna's current valuation is relatively cheaper than Affirm's and offers greater growth premium potential compared to traditional payment giants.
Klarna's Q3 earnings report showed growth exceeding expectations, while profitability faces short-term pressure but with a clear path forward. Overall, this represents normal fluctuations during the transition phase of a high-quality growth stock.
If Fair Financing and Klarna Card maintain strong growth momentum and Q4 transaction gross profit exceeds $39 million USD, the valuation still holds 30%-50% upside potential. Short-term stock price volatility is inevitable; we recommend waiting until the profit trajectory becomes clearer before adding positions.
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