Key Morningstar Metrics for Klarna Group
- Fair Value Estimate: USD 45
- Morningstar Rating: ★★★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
What We Thought of Klarna Group’s Earnings
Klarna reported fourth-quarter results that beat guidance on revenue and gross merchandise volume but missed transaction margin dollar guidance. The market punished the stock heavily, having expected improved profitability metrics in the near term.
Why it matters: Transaction margin dollars of USD 372 million in the quarter missed the USD 390 million guidance and also came in well below our assumption of USD 409 million after accelerated growth in the fair financing product (165% year over year).
- Klarna’s earnings quality is low at the moment. Growth in fair financing is improving Klarna’s unit economics but is depressing margins today. While it may be unfashionable, we think it’s right that management does not prioritize short-term margins at the expense of market share capture.
- Loan-loss provisions over GMV declined to 65 basis points from 72 basis points a quarter ago. Coverage ratios and delinquency rates also don’t point to a weakening balance sheet.
The bottom line: We maintain our USD 45 fair value estimate and Narrow Morningstar Economic Moat Rating. The shares appear deeply undervalued. We maintain our thesis that Klarna’s weak profitability in the near term is not the result of a broken business model.
- We expect growth in fair financing to start to moderate in 2026, albeit likely in the second half of the year, which should allow Klarna’s underlying profitability to emerge.
- Operationally, we see very few negatives in this quarter’s results that we think justify the stock price reaction. Growth in GMV, merchants, and customers was outstanding. Operating expenses are well controlled, and delinquency ratios show no sign of stress.
Long view: Klarna is now a default-on payment method with Stripe and Nexi and expects to launch its default-on status with Worldpay and J.P. Morgan Payments this year. The default-on status cements Klarna as a dominant buy now, pay later provider and drives higher adoption by new and existing users.
