Klarna Crashes After Earnings: Revenue Soars, Losses Surge, and Elliott’s $6.5B Lifeline Raises New Questions

Klarna’s first earnings report as a public company delivered a clear top-line beat but not the clean victory shareholders were hoping for, sending the stock down about 8% in early trading despite strong growth metrics. The buy-now-pay-later (BNPL) firm posted Q3 revenue of $903 million, up 26% from $706 million a year ago and ahead of the roughly $882–$885 million analyst consensus , but reported a $95 million net loss versus a $12 million profit in Q3 2024. With the stock already in a downtrend since its Sept. 10 IPO at $52—having peaked intraday at $57.20 and sliding to $34 ahead of the print—the market response underscores skepticism around the path to sustainable profitability and credit normalization, even as management leans hard into a growth-and-scale narrative.

Against expectations, the top line was the clear strong point. Revenue of $903 million exceeded LSEG and FactSet estimates in the low-$880 million area, powered by surging U.S. business and growing adoption of new products. Gross merchandise volume (GMV) rose 23% globally to $32.7 billion, with U.S. GMV jumping 43% and U.S. revenue up 51%, confirming the U.S. as the engine of the Klarna story. At the same time, transaction margin dollars (TMD) fell year over year to $281 million from $316 million, which at first glance suggests deteriorating economics—but management framed this as a “profitability lag” driven by accounting: provisions for Fair Financing loans are recognized upfront, while interest income accrues over the life of the loan.

Klarna’s business model is squarely in BNPL and adjacent consumer credit: it generates revenue primarily from merchant discount fees on transactions, plus interest and fees on longer-dated installment products and, to a lesser extent, late fees. The quarter showed clear traction across this ecosystem. Active customers rose 32% to 114 million, merchants grew 38% to 850,000, and the group take rate expanded to about 2.76%, helped by mix shift toward the higher-yield Fair Financing product. The Klarna Card—launched in July and positioned as a hybrid debit/credit tool that lets users pay instantly or split purchases into installments—has already surpassed 4 million customers and accounted for about 15% of transactions by October, with card GMV up 92% year over year. Fair Financing GMV grew 244% in the U.S. and 139% globally, but because provisions are booked upfront, interest income grew just 48%, with the remainder expected to flow through in coming quarters as customers repay.

On credit quality, management went out of its way to address the central investor worry: that BNPL growth is being built on a shaky consumer base. Klarna reported realized losses of just 0.44% of GMV, down 1 basis point year over year, and said more customers are paying on time or even early. Fair Financing delinquencies improved 5% year over year, while provisions for credit losses rose to 0.72% of GMV largely because the loan book is growing so quickly. Management emphasized that it is not seeing “material differences” in payback or spending habits tied to the current macro environment, even as external commentators—including the Richmond Fed—continue to flag BNPL’s younger, more leveraged demographic mix as a risk. The message from Klarna is that the credit engine is behaving well; the provisions are primarily a function of growth and accounting treatment rather than deteriorating borrower performance.

The most structurally important development this quarter sits on the balance sheet rather than the income statement: an agreement with Elliott Investment Management–managed funds to purchase Klarna’s U.S. Fair Financing loans. Over a two-year term, the parties expect to facilitate up to $6.5 billion of loans, with Elliott buying both part of the existing portfolio and, on a rolling basis from October onward, newly originated receivables. This effectively creates scalable, off-balance-sheet funding for Klarna’s fastest-growing credit product, freeing capital, improving long-term capital efficiency, and de-risking concentration in its own balance sheet. For investors worried about how Klarna would finance rapid U.S. installment growth without loading up on risk-weighted assets, this is a key proof point: Klarna can originate, earn its fees and interest spread, and distribute a chunk of the credit risk to a sophisticated partner.

Guidance and outlook tilted constructive, though again with an accounting wrinkle. For Q4, Klarna expects GMV of $37.5–$38.5 billion and revenue of $1.065–$1.08 billion, modestly above the roughly $1.06 billion consensus. TMD is forecast in the $390–$400 million range, implying an uplift of more than $100 million versus Q3 as previously originated Fair Financing loans generate revenue with fewer new provisions. Management highlighted that revenue has grown 108% since Q3 2022 while operating expenses are up just 2%, crediting AI-enabled productivity and cost control for the operating leverage. Klarna reiterated its 2025 outlook calling for continued expansion in GMV, revenue, and TMD and a “clear and steady path to profitability,” while also acknowledging some nervousness about the industry’s massive AI/data center investment cycle and long-term compute demand dynamics.

Despite the fundamental momentum, the stock reaction reflects a market that has grown more demanding on high-growth fintechs. Investors are digesting a mix of factors: a net loss where there was a profit a year ago, a profitability framework that relies heavily on timing differences in provisions versus interest income, regulatory and reputational overhangs around BNPL, and a broader risk-off environment driven by AI bubble fears and concerns over consumer spending. From an equity standpoint, the setup is straightforward: operational KPIs and U.S. growth are strong, the Elliott deal strengthens Klarna’s balance-sheet story, and credit metrics remain reassuring—for now. But with the IPO already in the rearview mirror and the stock down more than a third from its highs, Klarna now has to prove that its “fair financing” narrative can translate into fair returns for shareholders across a full credit and economic cycle.