Klarna Group plc Q1 FY2026 earnings call

Strategic Business Priorities

• Pursuing a global default Payment Service Provider (PSP) parity strategy, modeled after Amex's 2000s ubiquity playbook, to reach parity with major card networks across 26 markets
• Core focus on becoming a full-suite payment provider offering relevant products for all merchant verticals, from subscriptions and groceries to airlines and fast fashion
• Maintaining a spend-centric, not lend-centric, business model, with the credit book turning more than 10 times per year
• Core three priorities for the full 2026 remain: scale default PSP partnerships, strengthen the spend-centric foundation, and deliver deposit-funded growth from everyday spend

Product Development and Growth Highlights

• Expansion of the full product suite: debit for everyday spend, PayLater (BNPL) for mid-ticket purchases, and fair financing point-of-sale installments for big-ticket purchases
• Klarna Card hit 5 million global active users this quarter, with stronger than expected debit usage that drives higher customer engagement; card users have 3x transaction frequency and 4x average revenue per user after 6 months of maturity
• Merchant count grew 49% YoY to 1.07 million, with new partnerships with JP Morgan Payments and WorldPay scheduled to launch later in 2026, following already scaling partnerships with Stripe and Nexi
• Fair financing expansion in the U.S. outperformed forecasts, gaining meaningful market share in less than 12 months, and is offered almost exclusively to existing customers with proven repayment histories

Financial and Operational Strength

• Significant operating leverage: non-transaction operating expenses grew only 3% YoY, while TMD grew more than 14 times faster than the cost base, driven by network effects
• 91% of funding comes from consumer deposits with an average duration of 270 days, creating one of the most stable funding profiles in banking, enabling competitive pricing of U.S. originations
• Forward flow receivable sale capabilities were expanded this quarter, acting as an additive (not substitute) tool to improve capital efficiency
• Credit quality remains healthy: U.S. fair financing 30+ days past due improved 36 basis points from the Q2 2025 peak, and delinquency rates for both products are tracking in line with internal expectations
• New enhanced transparency: will now report volume by product and by U.S./non-U.S. separately, and publish credit provisions by cohort for both PayLater and fair financing, alongside a new public supplementary data pack

Overall company: Total Q1 2026 revenue was $1.012 billion, up 44% year-over-year (YoY); total gross merchandise volume (GMV) was $33.7 billion, up 33% YoY; total transaction margin dollars (TMD) were $389 million, up 44% YoY; adjusted operating profit was $68 million, up from $3 million YoY; net income turned positive to $1 million, a $100 million YoY improvement.

By product segment:

1. PayLater: $26.0 billion GMV, up 29% YoY, representing 77% of total GMV. It is the largest product by volume, with stable 30+ day delinquency rates, short 10x annual turnover, and an average consumer balance of $124.
2. Fair Financing: $4.1 billion GMV, up 138% YoY, representing 12% of total GMV. 225,000 merchants now offer the product, up from 103,000 YoY, and it generates higher TMD per dollar of GMV as it matures.
3. Pay in Full (debit/everyday spend): $3.5 billion GMV, representing 10% of total GMV, driving customer engagement and deposit growth.

By geographic segment:

1. United States: $7.1 billion GMV, up 39% YoY, representing 21% of total GMV; $399 million revenue, up 67% YoY; $106 million TMD, up 58% YoY, with a 26.6% TMD margin on revenue.
2. Global ex-U.S.: $26.6 billion GMV, up 31% YoY, representing 79% of total GMV; $613 million revenue, up 33% YoY; $283 million TMD, with a 46.2% TMD margin on revenue, with mature markets hitting ~60% transaction margins.

• Full year 2026 guidance is unchanged (maintained) from prior updates: targets GMV of greater than $155 billion, revenue of greater than 2.8% of GMV, TMD of greater than 1.04% of GMV, and adjusted operating income of greater than 6.9% of revenue
• Q2 2026 guidance incorporates normal retail seasonality and FX normalization after sharp U.S. dollar depreciation in Q1 2025, with targets: GMV of $35.5 to $36.5 billion, revenue of $960 million to $1 billion, TMD of $375 to $395 million, and adjusted operating income of $30 to $50 million
• TMD is expected to compound faster than revenue through 2026, with ~30% TMD growth targeted versus 22-23% revenue growth, driven by maturation of the fair financing portfolio
• Medium-term long-term margin targets (no formal guidance beyond 2026): management expects ~50% transaction margin in steady state as the portfolio matures, and ~25% adjusted operating income margin in the medium to long term

• Forward-looking statements are inherently uncertain, and actual results may differ materially from current expectations due to unforeseen risks and uncertainties, as detailed in Klarna's SEC filings
• Macroeconomic pressure on consumers from geopolitical events and rising prices creates potential credit risk, though Klarna's current delinquency metrics remain stable and in line with expectations
• Fair financing growth creates higher upfront processing and servicing costs that will decline as a share of revenue as the portfolio matures
• U.S. transaction margins are currently lower than mature European markets, and convergence to mature market levels may take longer than currently expected
• Receivable sale gains are opportunistic and have timing variability that can create quarterly volatility in reported interest income and net income

Q: What key factors drove the positive Q1 2026 upside surprise in U.S. fair financing growth, and what is underappreciated by investors about this expansion? / A: Fair financing grew 220% YoY in Q1, driving 56% YoY interest income growth on top of continued volume compounding from H2 2025. Q1 results beat prior volume forecasts, partially due to a late quarter asset sale that generated extra interest income before the sale closed. Seasonal collection performance was also much stronger than expected, particularly in the U.S. following the 2025 holiday peak season.

Q: How are fair financing cumulative loss trends tracking versus internal expectations, and have you adjusted underwriting or origination pace over the last six months? / A: All delinquency metrics (30+ and 60+ days past due) are moving in the right direction, with sequential declines in U.S. delinquency in Q1, confirming strong risk management aligned with our strategy. Cumulative net charge-offs are fully in line with expectations. Minor model adjustments were made to account for new card and 3-month loan tenors added in H2 2025, and performance has normalized as expected after the changes.

Q: How do new merchant additions break down between net new merchants to BNPL and merchants already using a competing BNPL provider, and what is Klarna's competitive capture rate? / A: Klarna does not disclose the exact split, but its broad global coverage and full product suite are the key draws for large PSP partnerships that add most new merchants. Most competing BNPL providers are not default options for PSP merchants, requiring extra merchant integration, while Klarna comes pre-integrated out of the box. When Klarna is placed side-by-side with competitors, consumer data consistently shows higher consumer preference and checkout share for Klarna in both the U.S. and Europe.

Q: Has the card rollout had any unexpected usage trends, and how does the card ramp impact the P&L? / A: The biggest positive surprise was that debit usage on the Klarna Card is significantly stronger than management initially expected, which advances the goal of making it an everyday spend card. P&L impacts include over 600% YoY growth in membership fees from card users, and the higher engagement of card users (3x frequency of non-card users) drives higher long-term revenue per user. Card users reach 4x higher average revenue per user after six months of maturity.

Q: What is your response to investor concerns about stress on lower and middle-income consumers, and could BNPL see increased usage as a cash flow management tool in this environment? / A: Klarna consumer credit performance remains very stable, with delinquency rates holding steady across both product lines. Klarna PayLater operates as a short-duration charge card equivalent, with an average outstanding balance of ~$120, far lower than the average credit card balance of ~$6,000, so it has much lower credit exposure than traditional revolving credit. Klarna's real-time transaction underwriting also allows it to adjust to changing macro conditions quickly, with over half of the balance sheet re-underwritten to new standards within 60 days, and fair financing is only offered to existing users with proven repayment track records.