Klarna's IPO and the BNPL Sector's Strategic Rebalance

The Buy Now, Pay Later (BNPL) sector is undergoing a strategic rebalance as Klarna's $15.1 billion IPO valuation and Affirm's $28.4 billion market cap diverge in performance and investor sentiment. For investors weighing long-term alternatives, the question arises: Does Klarna's apparent undervaluation and broader market positioning justify its appeal over Affirm?

Klarna's IPO: A Conservative Valuation Amid Strategic Expansion

Klarna's U.S. IPO in September 2025 priced at $40 per share, raising $1.37 billion and valuing the company at $15.1 billion—a 5x multiple of its $2.8 billion 2024 revenue. This valuation lags behind Affirm's 8.9x revenue multiple, despite Klarna's larger user base (93 million active users vs. Affirm's 22 million) and higher gross merchandise volume (GMV) of $105 billion in 2024. Analysts attribute this gap to Affirm's faster revenue growth (37.1% year-over-year in FY25) and a business model skewed toward high-margin interest income, which accounted for 53% of Affirm's Q3 2025 revenue.

Klarna's conservative valuation reflects its recent financial challenges. While it reported a $21 million net profit in 2024—the first since 2019—its first-half 2025 net loss of $152 million, driven by one-time expenses like lease restructuring and share-based compensation, has raised concerns. However, the company's strategic pivot toward digital banking and longer-term financing could mitigate these risks. By expanding into interest-based products, Klarna aims to replicate Affirm's margin advantages, with management projecting a growing share of revenue from interest income.

Affirm's Momentum and Valuation Risks

Affirm's Q3 2025 results underscore its momentum: 35.9% year-over-year revenue growth, a 31.3% surge in interest income to $414.4 million, and a narrowing operating loss of just $4 million in Q2 FY25. Its forward 12-month P/S ratio of 4.34x, below the fintech industry average of 5.12x, suggests it remains relatively undervalued compared to peers. Yet, Affirm's stock is trading at a 593% premium to Morningstar's fair value estimate, with a P/E ratio of 570.9 and a P/S ratio of 8.7x, both far exceeding sector medians. This disconnect between fundamentals and valuation raises questions about sustainability, particularly as BNPL competition intensifies.

Strategic Rebalance: Diversification vs. Profitability

Klarna's expansion into digital banking and debit cards positions it to diversify revenue streams beyond BNPL, a strategy that could reduce reliance on merchant fees and advertising. However, this pivot has increased credit provisions and near-term financial pressure, as seen in its 2025 H1 losses. In contrast, Affirm's focus on profitability and margin optimization—evidenced by its 30% year-over-year growth in card network revenues—has made it a more immediate contender for earnings-driven investors.

The BNPL sector's rebalance hinges on which strategy resonates with market conditions. Klarna's undervaluation offers upside potential if its digital banking ambitions materialize, while Affirm's current profitability and higher growth rates appeal to those prioritizing near-term returns.

Risks and Long-Term Considerations

Both companies face headwinds. Klarna's valuation discount may persist if its interest income transition falters or if regulatory scrutiny of BNPL models intensifies. Affirm, meanwhile, risks overvaluation if its growth slows or if interest income margins compress. For long-term investors, Klarna's larger user base and strategic diversification could prove compelling, but Affirm's execution on profitability and margin expansion remains a critical differentiator.

In conclusion, Klarna's IPO represents a strategic rebalance in the BNPL sector, offering a lower-risk entry point for patient capital. However, Affirm's momentum and higher-margin business model suggest it remains the stronger near-term play. Investors must weigh Klarna's undervaluation against its execution risks and Affirm's valuation premium against its growth trajectory.