LONDON – Klarna, the Swedish “buy now, pay later” (BNPL) giant, experienced a dramatic market correction on Thursday, with its share price plummeting nearly 27% following the release of its 2025 financial results. The decline underscores growing investor concerns about rising credit losses and the company’s ambitious, yet challenging, transition from a BNPL provider to a broader financial services platform. The stock, which had already lost significant value since its New York listing in September, now trades at a fraction of its initial valuation, raising questions about the future of the once high-flying fintech firm.
The sharp downturn was triggered by Klarna’s announcement of a $273 million net loss for 2025, coupled with a substantial increase in provisions for expected credit losses. Investors reacted swiftly, sending shares down 27% to $13.85, representing a nearly 68% drop since its initial public offering (IPO). This brings Klarna’s market capitalization down to $5.3 billion, a stark contrast to the $15 billion valuation it held prior to its New York listing in September, as reported by the Financial Times.
A key driver of the losses was a $250 million provision set aside in the fourth quarter for credit losses – a nearly 60% increase compared to the same period in 2024. This increase is partially attributed to the growth of Klarna’s “fair financing” product, a longer-term, interest-bearing loan scheme. Unlike traditional BNPL offerings, this product requires Klarna to book provisions upfront, even though revenue is generated over the loan’s lifespan. This accounting practice, while aligning with regulatory requirements, impacts short-term profitability.
Klarna’s Shift Towards a Neobank Model
Klarna’s struggles come as the company attempts a strategic pivot away from its core BNPL business towards becoming a fully-fledged neobank. This transformation involves expanding its offerings to include debit cards, savings accounts, and other traditional banking products. The company currently has 4.2 million active users of its debit card, signaling some success in this endeavor. Klarna’s CEO and co-founder, Sebastian Siemiatkowski, has articulated a vision of acquiring customers through seamless payment options and then deepening those relationships by offering a wider range of financial services. The company now boasts 118 million active users, a 28% increase year-over-year, and generates approximately $107 in annual revenue per banking customer, significantly higher than the $30 earned from its average consumer.
However, this transition is not without its challenges. The BNPL market is becoming increasingly competitive, with established financial institutions and new entrants vying for market share. Rising interest rates and economic uncertainty are putting pressure on consumer spending and increasing the risk of defaults. Klarna’s increased credit loss provisions reflect this heightened risk environment.
Credit Loss Concerns and Legal Scrutiny
The surge in credit loss provisions has also drawn scrutiny from investors and legal counsel. Klarna is currently facing multiple securities class action lawsuits alleging misstatements in its IPO registration statement regarding credit loss risks and reserves. Plaintiffs claim the company understated its exposure to potential defaults, raising concerns about transparency and investor protection. According to a report by Simply Wall St, these lawsuits center on whether Klarna adequately disclosed the potential for losses associated with its lending activities.
Despite the concerns, Klarna’s CFO, Niclas Neglén, maintains that consumer credit quality remains stable. He stated that provisions for credit losses actually declined in the fourth quarter compared to the third, suggesting that the increase was primarily due to the growth of the “fair financing” product rather than a deterioration in consumer financial health. However, this assertion is being closely watched by analysts and investors.
The Role of Artificial Intelligence in Klarna’s Strategy
Klarna is heavily investing in artificial intelligence (AI) to streamline operations and reduce costs. Siemiatkowski has been a vocal advocate for AI, even making personal investments in companies like OpenAI and xAI through his family office, Flat Capital. The company claims that AI-powered automation has allowed it to effectively halve its workforce in recent years by not replacing employees who leave. An AI chatbot currently handles approximately two-thirds of customer service inquiries, further demonstrating Klarna’s commitment to leveraging AI for efficiency gains.
This focus on AI is not merely about cost-cutting; it’s also seen as a key differentiator in a competitive market. Klarna believes that AI can help it better assess credit risk, personalize customer experiences, and detect fraudulent activity. However, the reliance on AI also raises questions about potential biases and the demand for robust oversight.
Financial Performance and Future Outlook
While Klarna reported a net loss for 2025, the company did experience strong revenue growth. Total revenue for the fourth quarter of 2025 reached $1.08 billion, up 38% year-over-year. Gross merchandise volume (GMV) climbed to $38.7 billion, exceeding analyst estimates. However, these positive figures were overshadowed by the concerns surrounding credit losses and the weaker-than-expected guidance for 2026.
Klarna forecasts first-quarter 2026 revenue between $900 million and $980 million, falling short of the $966 million analyst consensus. Adjusted operating profit is expected to range from $5 million to $35 million, significantly lower than the $67.1 million projected by analysts. This cautious outlook suggests that Klarna anticipates continued headwinds in the near term. The company is scheduled to publish its full annual results on February 26, which will provide further insights into its financial performance and strategic direction.
The future of Klarna hinges on its ability to successfully navigate these challenges. The company’s bet on AI and its expansion into broader financial services will be critical to its long-term success. However, the current market environment and the ongoing legal scrutiny present significant hurdles. Investors will be closely watching Klarna’s full annual results on February 26 for further clarity on its strategic direction and financial outlook. The company’s ability to manage credit risk and demonstrate sustainable profitability will be paramount in restoring investor confidence.
Key Takeaways:
- Klarna’s share price plummeted nearly 27% following a disappointing 2025 financial report.
- Increased credit loss provisions, reaching $250 million in Q4, were a primary driver of the decline.
- The company is undergoing a strategic shift from a BNPL provider to a neobank.
- Klarna is facing securities class action lawsuits alleging misstatements regarding credit loss risks.
- The company is heavily investing in artificial intelligence to reduce costs and improve efficiency.
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