Klarna: A Swedish Gambit

by

The Klarna Group (KLAR +1.69%), a Swedish enterprise that arrived on the scene with the fanfare of a moderately successful circus, finds itself in a curious predicament. It went public last September, a rare bloom in a field of withered IPOs, only to discover that the market, a creature of fickle tastes, wasn’t quite ready for its particular brand of financial wizardry. Down 56% from its opening price, one begins to suspect the initial enthusiasm was less investment and more a collective delusion. They offer their latest report on February 19th, and the question is not merely whether to buy, but whether one should even look.

A Master of Deferred Payments

Klarna, you see, is in the business of making tomorrow’s money available today. A perfectly respectable profession, of course, practiced for centuries by pawnbrokers and, more recently, by credit card companies. Their specialty is “buy now, pay later,” a phrase that sounds suspiciously like a promise to worry about consequences after the shopping spree. They’ve even secured a monopoly with Walmart, a partnership that suggests either great foresight or a shared fondness for risk. Their “Pay in 4” service, splitting purchases into bite-sized, interest-free installments, is particularly ingenious. It’s the financial equivalent of offering a man a fish, then politely requesting he pay for it over four weeks. They’re also branching out, naturally, into all manner of financial services. One suspects they’ll soon be offering loans to finance the purchase of larger, more extravagant illusions.

The numbers, at first glance, are encouraging. Revenue increased 26% year over year, and gross merchandise volume swelled by 23%. In America, they’ve seen a 48% increase, which suggests the locals have a particular appetite for deferred gratification. Four million new card signups and 27 million new users—a 32% increase bringing the total to 114 million—indicate a certain… popularity. Their “Fair Financing” product, which does involve interest, saw a staggering 244% increase in U.S. gross merchandise volume. Merchant count rose 38% to 850,000. All this suggests engagement, opportunity… and a growing mountain of IOUs. They are, of course, still reporting losses. Net loss widened from a modest $4 million to a rather more substantial $94 million. Much of this, they claim, is related to the IPO. One can only assume the champagne bill was exorbitant.

Management assures us revenue is growing faster than expenses, and a path to profitability is visible on the horizon. One can only hope this path isn’t paved with good intentions and empty promises.

Loading widget...

A Bargain or a Beautifully Decorated Trap?

Since Klarna is currently operating at a loss, valuing it using traditional metrics is… problematic. A price-to-sales ratio of 2 times trailing-12-month sales seems, on the surface, remarkably low for an industry leader. But then, appearances are often deceiving. The market, it seems, views Klarna as a rather risky proposition, and with good reason. The macroeconomic climate is… turbulent, and continued losses rarely inspire confidence.

Long-term, Klarna could bounce back and deliver value for shareholders. If one has a penchant for risk—and a healthy disregard for the laws of financial gravity—buying now might prove profitable. But don’t necessarily expect a miracle before February 19th. If the news isn’t favorable, the stock could continue its descent. After all, in the world of finance, as in life, one should always be prepared for a fall. It’s not the landing that’s the problem, but the realization that you were flying on borrowed wings.

Read More

2026-02-15 22:02