Klarna Card Users Hit 6.5 Million but Stock Plunges on Lower Outlook

Klarna is getting consumers to use it for more than pay-in-four, but the second quarter also showed what happens to transaction growth when discretionary spending slows in a major market.

By the numbers, released on Tuesday (Aug. 18), gross merchandise volume rose 18% year over year to $36.6 billion, while revenue increased 27% to $1.04 billion. The U.S. remained Klarna’s fastest-growing large region, with volume up 27% to $7.9 billion and revenue up 37% to $376 million. Outside the U.S., GMV increased 15% and revenue rose 22%. Pay later grew 13%, while pay in full, Klarna’s everyday spending product, contributed $3.6 billion of volume. Fair financing, its fixed-term installment product for larger purchases, grew 82% to $4.7 billion and reached 13% of total volume.

A weaker forecast for the months ahead spurred Klarna’s shares to plunge 18% in early trading Tuesday following the results. The company also announced management changes, where the CFO and CMO will step down early next year.

Klarna cut its full-year GMV outlook to $149 billion to $151 billion from more than $155 billion. Management attributed roughly $600 million of the reduction to currency movements, with the remainder coming from a more measured European volume forecast concentrated in Germany, Klarna’s largest market by volume.

Klarna also reduced its revenue forecast to $4.08 billion to $4.16 billion, down from more than $4.34 billion. Part of that change reflects new accounting treatment for some fair-financing originations in the U.S. and Germany. At the same time, the company raised its full-year transaction margin dollar forecast to $1.62 billion to $1.65 billion.

CFO Niclas Neglén said discretionary retail spending in Germany began weakening late in the second quarter and remained soft as the third quarter started.

“What we saw towards the back end of Q2 was a softening in the consumer discretionary spend in Germany,” Neglén told analysts during the conference call. The new forecast assumes that weakness continues rather than recovering before year-end.

The results elsewhere in Europe were varied. Neglén said Germany’s weakness was more pronounced, although there were pockets of softness in other markets. The Nordics were producing double-digit growth following card and fair-financing expansion, while Southern Europe continued to show good growth.

Klarna Focuses on Expanding Card Reach

Elsewhere, the earnings call centered on where Klarna is adding transactions and revenue beyond its traditional online checkout business.

Klarna Card reached 6.5 million active users across 16 countries, up from 1.3 million a year earlier. That compares with 3.2 million active users in November, meaning the total has more than doubled in nine months.

The card makes Klarna’s payment choices available for in-store purchases, including both pay in full and financing.

“The card, in a way, is just a vehicle to bring these debit, the pay in full opportunity, as well as the big ticket spend on fair financing products into everyday purchases in the physical world,” CEO Sebastian Siemiatkowski told analysts.

How consumers use the card differs by market. Neglén said Sweden, where Klarna has deep penetration, is seeing more growth in pay-in-full transactions as consumers use the card for everyday spending. In less mature markets, usage is more evenly distributed among Klarna’s payment options. U.S. pay-in-full usage is growing rapidly from a low base.

Subscriptions provide another source of revenue from those consumers. Klarna reached 2 million paying subscribers, eight times the year-earlier total, while subscription revenue grew more than 600%. The company has introduced membership plans that include cashback and other benefits.

Asked about the potential size of the business, Siemiatkowski said the card and membership offerings would begin coming together, but declined to forecast how much revenue subscriptions could ultimately generate.

“Where or how big it can become, that is too early to tell,” he stated.

The economics differ from payment volume. Management said subscriptions carry almost no associated GMV, so membership fees can add revenue and transaction margin dollars without a comparable increase in transactions.

At the other end of the spending range, Klarna is expanding fair financing for purchases generally between $500 and $10,000. The product is now offered by 256,000 merchants, up from 151,000 in November, and its availability in the U.S. more than doubled.

That compares with more than 1 million merchants accepting Klarna overall. Siemiatkowski said Klarna is working through its payment-service-provider partnerships to make more payment products available across that merchant base.

Apple and Walmart are two examples of Klarna’s expansion into those larger purchases. Walmart was announced previously, while the new Apple Upgrade partnership will allow consumers to apply for Apple device leasing and manage their payments through Klarna.

“In big ticket spend, we are newer in that,” Siemiatkowski said during the Q&A. “We previously announced Walmart, now we’re announcing Apple.”

Consumer credit performance didn’t deteriorate as financing volume grew. U.S. 30-day-plus delinquencies improved sequentially for both fair financing and pay later when comparable vintages were measured at the same stage, and provisions declined as a share of GMV. Recent global ex-U.S. cohorts also improved sequentially and year over year.

Klarna maintained its U.S. volume assumptions for the year. The second half includes the Apple Upgrade rollout, continued card expansion and additional distribution through payment-service providers, with management expecting more merchants and integrations to be live before peak shopping season.

Following the release of the earnings results, Klarna’s stock fell 21%.