Is Klarna (KLAR) Stock a Buy Amid Valuation Discrepancies and Mixed Earnings Signals?

The fintech sector has long been a battleground for contrarian investors, where high-growth narratives clash with valuation skepticism. Klarna Group (KLAR), the Swedish buy-now-pay-later (BNPL) giant, sits at the center of this tension. Its Q3 2025 results-marked by record revenue and user growth but persistent losses-highlight the challenges of balancing optimism for disruptive innovation with the cold calculus of financial metrics. For investors seeking contrarian value in high-growth fintechs, the question is whether KLAR's current valuation reflects its potential or overprices its uncertainties.

A Tale of Two Metrics: Growth vs. Profitability

Klarna's Q3 2025 performance was a mixed bag. Revenue surged to $903 million, a 26% year-over-year increase and exceeding Wall Street's $882 million forecast. Gross merchandise volume (GMV) hit $32.7 billion, with U.S. GMV growing 43%-a testament to the Klarna Card's rapid adoption (4 million sign-ups in four months) and the explosive 244% rise in Fair Financing GMV. These figures underscore Klarna's ability to capture market share in a sector where consumer demand for flexible payment options remains robust.

Yet profitability remains elusive. The company reported a net loss of $95 million for the quarter, despite a 15% contribution of Klarna Card transactions to total volume. This disconnect between top-line growth and bottom-line results raises a critical question: How long can investors tolerate losses in exchange for expansion? Klarna's guidance for Q4 2025-projecting revenue above $1 billion and GMV of $37.5–$38.5 billion-suggests confidence in compounding growth, but it also hinges on margin expansion that has yet to materialize.

Valuation at a Crossroads

Klarna's valuation metrics tell a story of optimism tempered by caution. As of December 2025, the stock trades at a price-to-sales (P/S) ratio of 3.6x, slightly above its peer group average of 3.7x but well above the industry average of 2.5x. This premium reflects investor bets on Klarna's ability to monetize its expanding user base (now 114 million active users) and merchant network (850,000 merchants). However, the 3.6x multiple also appears stretched relative to broader fintech trends, particularly for a company that has yet to turn a profit. The Enterprise Value (EV)/Revenue ratio of 2.41 further complicates the picture. While this metric suggests a more conservative valuation than P/S, it still implies significant expectations for future cash flows. For context, Affirm's IPO valuation of $18.2 billion (vs. Klarna's estimated $14.6 billion market cap) reflects a similar risk-reward profile but with a clearer path to profitability. Analysts' price targets, averaging $47.07 (a 48% upside from the $31.63 price as of December 2025), reinforce this optimism. Yet a discounted cash flow (DCF) model from Simply Wall St suggests a fair value near $0.17-a stark divergence that highlights the volatility of assumptions in high-growth valuations.

Contrarian Considerations: Risks and Opportunities

The contrarian case for KLAR hinges on two key arguments. First, the market may be overcorrecting to short-term losses while underestimating Klarna's long-term monetization potential. The company's AI-powered digital banking strategy, including the Klarna Card and Fair Financing, could unlock new revenue streams beyond traditional BNPL. For instance, the 15% transaction share from the Klarna Card in just four months suggests rapid user adoption, which could drive interchange fees and cross-selling opportunities.

Second, Klarna's U.S. expansion-where GMV grew 43% year-over-year-positions it to benefit from structural trends in digital payments. The U.S. market, with its fragmented BNPL landscape and regulatory tailwinds, offers a fertile ground for consolidation. However, this opportunity comes with risks. Intensifying competition from PayPal, Affirm, and traditional banks could pressure pricing power, while regulatory scrutiny of BNPL models remains a wildcard.

Analyst Sentiment: A Split Screen

Analyst sentiment is divided. Wolfe Research recently lowered its price target to $45 from $50, citing Fair Financing's impact on margins, but maintains an "Outperform" rating. Meanwhile, the DCF model's $0.17 fair value underscores the fragility of KLAR's valuation if growth slows or margins fail to improve. This split reflects a broader debate in fintech investing: Should investors prioritize near-term metrics (like P/S and EV/Revenue) or bet on the company's ability to scale and innovate?

Conclusion: A High-Stakes Bet

For contrarian investors, KLAR presents a high-stakes proposition. The stock's valuation discrepancies-expensive by industry standards but justified by aggressive growth-reflect a market that is both skeptical and hopeful. While Klarna's Q3 results demonstrate its ability to execute on expansion, the path to profitability remains unproven. Investors willing to tolerate short-term volatility might find value in KLAR's disruptive potential, particularly if the company can sustain its U.S. momentum and diversify into higher-margin services. However, those prioritizing near-term fundamentals may view the current valuation as a cautionary tale of overhyped growth.

In the end, KLAR's investment thesis hinges on a simple question: Can Klarna's user and merchant network effects translate into durable profitability, or will the market demand a correction? For now, the answer remains as uncertain as the BNPL sector itself.