Klarna Shares Plunge 68% From IPO as Fair Financing Bets Squeeze Margins

Klarna Shares Plunge 68% From IPO as Fair Financing Bets Squeeze Margins

Klarna's second earnings report as a public company has turned into a credibility crisis. The Swedish buy-now-pay-later giant missed its own fourth-quarter guidance for the second consecutive quarter, sending shares down to $12.80—68% below its $40 IPO price from late 2025. The company's current $5 billion market cap represents roughly one-tenth of the $46 billion valuation it commanded in private markets during 2021's fintech boom.

For CFOs watching the BNPL sector, Klarna's stumble offers a case study in how product mix shifts can torpedo near-term profitability even as top-line metrics improve. The company's pivot toward longer-duration loans is creating an accounting mismatch that management either didn't anticipate or failed to communicate—and investors are no longer giving them the benefit of the doubt.

The miss came down to transaction margin dollars, the metric that matters most in BNPL economics. Klarna reported $372 million for the fourth quarter, falling short of the $395 million midpoint it had guided to just eleven weeks earlier in mid-November. That gap—roughly 6%—might seem modest, but it was enough to swing the quarter from expected profit to an actual loss. Making matters worse, Klarna's 2026 forecast for GMV, revenue, transaction margin dollars, and adjusted profit all came in below what analysts had been modeling.

Management's explanation centers on what Klarna calls "fair financing"—interest-bearing installment loans that can stretch up to 24 months, compared to the traditional four-payment, interest-free structure that built the BNPL category. Here's the accounting trap: when Klarna originates a fair financing loan, it must immediately provision for expected credit losses over the full loan term. But the interest income that's supposed to offset those losses? That gets recognized ratably over the 24-month period. It's a classic timing mismatch, and one that suppresses reported profitability in any quarter where fair financing is growing rapidly.

The thing is, this isn't new information. Klarna blamed the same dynamic for its third-quarter miss. Which raises the question: if management knew fair financing was expanding faster than expected, why guide to transaction margins they couldn't hit? Either the credit losses are running hotter than modeled, the interest income assumptions were too optimistic, or the company simply can't forecast its own product mix. None of those answers inspire confidence.

The growth picture adds another layer of concern. Klarna's fourth-quarter GMV came in ahead of expectations at 23% growth on a like-for-like basis (stripping out currency effects and divestitures). But that 23% exactly matched the third quarter's rate, despite acceleration in both fair financing and Klarna Card volumes. The implication: the core Pay in 4 business—the product that made Klarna a verb—is decelerating. For a company that's supposed to be in growth mode, flat sequential growth rates are a yellow flag.

The 2026 outlook compounds the worry. Klarna's GMV forecast implies growth will actually slow compared to the exit rate from 2025. This comes even as the company should be benefiting from expanded payment service provider partnerships (more merchants accepting Klarna), a full year of its exclusive Walmart partnership, rising Klarna Card adoption, and continued fair financing expansion. If growth is slowing with all those tailwinds, what happens when they fade?

The market's verdict is visible in the valuation gap. Klarna now trades at 0.6 times next twelve months' revenue, according to Koyfin data. Compare that to Affirm, the leading U.S. BNPL player, which commands a 5.1x multiple—more than eight times higher. Some of that discount reflects Klarna's European exposure and different unit economics, but an 8x gap suggests investors see fundamentally different business quality.

For finance leaders evaluating BNPL partnerships or watching the sector's evolution, Klarna's trajectory offers a reminder that revenue growth and profitability don't always move in lockstep. The shift to longer-duration, interest-bearing products might make strategic sense for lifetime value, but it creates near-term margin pressure that's proving difficult to forecast. And in public markets, missing your own guidance twice in a row—especially by a company that went public at a premium valuation—erodes trust faster than good quarters can rebuild it.

The question now is whether Klarna can stabilize its forecasting and prove the fair financing strategy will eventually generate the margins management promises, or whether this is a business model transition that's more painful than anticipated. At a $5 billion market cap, the stock is pricing in considerable skepticism.