Capital Notions

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As of February 20: Shares down 71.25% since IPO. Revenue up 24–30% year-on-year as reported in its most recent earnings

What is Buy Now, Pay Later?

BNPL is a credit product which allows customers to get the good upfront while paying for it over a set period of time with zero interest. This business model took off because of the instant gratification mindset where customers can get what they want now and hurt less as the upfront cost is much lower. BNPL is not just issuing interest free short term debt, they are also a form of “merchant marketing”, these companies pay more than credit card merchants for a service like Klarna as it raises their conversion rate and allows merchants to sell more products.

Through the mid-2020’s BNPL has been on the rise, as of Fall of 2023 14% of adults have been reported to have tried BNPL in the past 12 months (up 10% from 2021). Nowadays, BNPL is showing up everywhere in everyday spending, not just bigger ticket items and discretionary goods. A very popular example of this is buy now pay later for DoorDash, allowing one to split up their food order over multiple payments.

Klarna (NYSE: KLAR)

Going public in late 2025 on the NYSE at 40$ a share, Klarna was the highest valued private company in Europe at the time. Today, on February 19 2026, Klarna is currently trading at $14.45. This is strange right? Users and Revenue numbers look great and are growing for Klarna, but this is not the concern. The bigger underlying issue was the re-evaluation of the predictability for their profits as they go from short term merchant-funded lending to longer term lending.

So what did the investors think they were buying into at 40$ a share?

Klarna framed themselves as a commerce network and not just a BNPL lender, Klarna underwrites transactions and takes income from the consumer plus interest (only on longer term lends, short installments are interest free). In their United States filing, Klarna stated that their risk profile is different then the traditional lenders, as the average duration of a loan is only 40 days and 85% of the loans were 3 months or less. They also have a structural advantage due to their deposit funding from their banking operations in Europe. It is also important to point out that pre-ipo Klarna showed an increase in net profit in the holding-company annual report.

Back to BNPL, The Re-Pricing of the Sector as a Whole

The whole idea of BNPL lives on a spread; take the rate plus ancillary revenue, minus funding cost, credit losses and expenses (compliance and operating). Because of this idea the sector can grow while valuations compress. For Klarna an alarming point was the rise in their funding cost from $503 million in 2024 to $667 million in 2025.

Apple also had a part to play in re-shaping how investors view BNPL. In 2023 Apple created Apple Pay Later and discontinued it shortly after by offering installment loans from other lenders. With this, companies saw that they can vertically integrate their BNPL “technology” to cut down on costs.

Klarna Again, The Q3 2025 Provision Shock

Klarna's first earnings report as a public company was not pretty, it showed $903 million in revenue on a $32.7 billion GMV (gross merchandise value) ... and still posted a $95 million net loss. Provisioning is also a key worry, they disclosed realized losses of 0.44% of GMV, while the provision for credit losses went to 0.72% of GMV. Klarna’s management stated that this increase was to accelerate the growth of their longer-duration “Fair Financing” portfolio and the requirement for them to book “upfront provisions” before the interest income accrues. The key takeaway from this, is that the gap between provisions and realized losses was widening, and this is not a result of borrowers not repaying as most loans were very short. This was more of an accounting timing issue and a product mix shift.

Klarna vs Affirm

Getting to the point, in Q3 2025 Affirm (another BNPL) reported GMV of $13.8 billion and total revenue of $1.123 million with an 8.14% revenue share of GMV and a net income (GAAP) of $129.6 million. In the same Q3, Klarna reported a 2.76% revenue take rate and a net loss. Klarna’s story for this is they accrue revenue after the upfront provisions, while Affirm reports current profitability and decomposes revenue into network revenue, interest income and loan-sale gains.

Rising Consumer Credit

The final point I want to touch on is consumer credit and delinquencies. According to the FRED, aggregate bank data looks fairly stable, it shows a delinquency rate on consumer loans at all commercial banks to be at 27.72% at Q3 of 2025, while total credit outstanding was $5.11 trillion at the time of December 2025. Reuters reported household credit troubles in late 2025 were worsening based on Federal Reserve Bank of New York data, this did not include sub prime auto borrowers in late 2025 as it was reported separately.

Conclusion

What I want you to take away from this is the understanding of Klarna’s slide in stock price, a result of the market re-pricing three uncertainties: