Klarna Group plc Q2 FY2026 earnings call

Core Financial Performance and Priorities

• Delivered results above the high end of guidance for the second consecutive quarter: total revenue grew 27% year-over-year, outpacing 18% GMV growth, while transaction margin dollars (management's core priority metric) grew 42% year-over-year. Adjusted operating income hit $91 million, up $62 million year-over-year, and net income turned positive at $9 million, with 1 cent basic/ diluted EPS, compared to a negative 14 cent loss a year prior.
• Operating costs grew only 16% year-over-year, delivering significant operating leverage, with 56 cents of every additional transaction margin dollar falling to the operating line.
• Management prioritizes transaction margin dollar growth over raw volume, as this metric directly drives long-term earnings per share growth.

Key Operational Milestones

• Klarna membership reached 2 million paying subscribers, up from 250,000 one year prior, with subscription revenue growing over 600% year-over-year. Recurring subscription revenue is high-margin, decouples revenue growth from GMV growth, and directly increases transaction margin dollars.
• The Klarna Card reached 6.5 million active users across 16 countries, more than doubling in 9 months, bringing Klarna's full product suite to in-person retail purchases.
• The JP Morgan Payments integration launched live on August 6, ahead of the 2026 peak holiday season, allowing all merchants on the largest US acquirer's platform to offer Klarna's full product suite via existing integrations with no additional setup required.
• Klarna is the official partner for the new Apple Upgrade device leasing program, a natural extension of its big-ticket financing strategy that creates direct relationships with new US consumers and drives long-term engagement.
• Credit performance continues to improve: delinquencies fell quarter-over-quarter across most cohorts, and provisions for credit losses have declined as a share of GMV for three consecutive quarters, down to 0.52% this quarter from 0.55% last quarter, driven by improved underwriting and growing receivable offloading programs.

Announced Leadership Transitions

• CFO Niklas Neglian (6 years at Klarna) and CMO David Sandstrom (9 years at Klarna) will step into transition and hand over their roles in early 2027, in a planned, deliberate handover. Both will remain with the company through the transition period, and the search for a New York-based new CFO is already underway. No changes to Klarna's core strategy or operations are tied to these transitions.

Klarna operates three core product segments serving different consumer spend categories: 1. Pay in Full (Everyday Spend): For purchases under $75 with no balance sheet risk, monetized via payment fees, subscriptions, and deposit interest. This segment generated $3.6 billion in GMV this quarter, and reached 2 million total paying subscribers, with subscription revenue growing over 600% year-over-year. 2. Pay Later (Lifestyle Spend): Zero-interest short-term installments for purchases between $75 and $500, equivalent to a charge card with 10 annual book turns. This segment grew 13% year-over-year. 3. Fair Financing (Big Ticket Spend): Fixed-term installments for purchases between $500 and $10,000, Klarna's fastest-growing segment. It grew 82% year-over-year to $4.7 billion in GMV, is now offered by 256,000 merchants, and accounts for 13% of total company volume. Regionally, the US delivered $7.9 billion in GMV, up 27% year-over-year, accounting for 22% of total GMV (up 2 percentage points year-over-year). US transaction margin dollars hit $88 million, up 126% year-over-year, growing from 14% to 23% of US revenue year-over-year. Global ex-US delivered $28.8 billion in GMV, up 15% year-over-year, with transaction margin dollars of $358 million, up 30% year-over-year, reaching 54% of global ex-US revenue (up 4 percentage points year-over-year). Total company transaction margin dollars reached $446 million, up 42% year-over-year, equal to 42.8% of total revenue (up 450 basis points year-over-year).

• Full year 2026 GMV guidance is revised downward to $149-151 billion, from the prior guidance of above $155 billion, representing approximately 17% year-over-year growth. Around $600 million of the downward revision comes from negative currency movement, with the remainder driven by a softer-than-expected consumer outlook in Germany, which management expects will continue through the end of the year. US volume assumptions remain unchanged, and the US is still expected to be Klarna's fastest growing large region.
• Full year 2026 reported revenue guidance is revised downward to $4.08-4.16 billion, from prior guidance of above $4.34 billion. This revision is entirely a result of a prospective accounting change for US and German Fair Financing originations under IFRS 9, which shifts recognition from interest income to gain on sale at origination, reducing reported revenue and transaction costs proportionally, with no change to transaction margin dollars.
• Full year 2026 transaction margin dollars guidance is raised to $1.62-1.65 billion, equal to 1.09% of GMV, up from the prior 1.04% guidance. Even after excluding 2 basis points of timing benefit from the accounting change, stronger underlying unit economics add $40-50 million of transaction margin dollars for the year, despite lower overall volume.
• Full year 2026 adjusted operating income guidance is $280-300 million, equal to 6.9-7.2% of revenue, which is more than four times the full year 2025 adjusted operating income result of $65 million. Full year adjusted operating expenses are expected to grow ~15% year-over-year, while transaction margin dollars grow over 30%, continuing the operating leverage trend.
• Q3 2026 guidance: $35-36 billion GMV, $940-980 million revenue, $340-360 million transaction margin dollars, and $5-15 million adjusted operating income. Q3 is a planned investment quarter to prepare for peak season and new product/partnership launches, with higher share-based compensation in the quarter.
• Q4 2026 is expected to be a strong transaction margin quarter, with investments from Q3 driving improved profitability ahead of the holiday peak season.

• Softer-than-expected consumer discretionary spending and sentiment in Germany, Klarna's largest market by volume, is leading to lower-than-expected volume growth, with management modeling very marginal overall growth in Germany for the full year 2026.
• Forward-looking statements rely on assumptions about consumer demand, FX rates, partnership adoption, and credit performance, and actual results may differ materially from guidance.
• Credit risk remains inherent to the point-of-sale financing business, though Klarna maintains strict underwriting standards and prioritizes risk-adjusted returns over marginal volume growth, with delinquency trending down in recent quarters.
• FX rate volatility creates headwinds to reported GMV and revenue compared to prior guidance.

Q: Management guided to a lower exit rate for transaction margin dollars in H2 2026 than the strong H1 2026 result, even with the accounting change that should lift margins. What drives this dynamic, and how will Fair Financing continue to drive margin growth over time? / A: H2 2026 is expected to deliver 23% year-over-year transaction margin dollar growth on the midpoint of guidance, down from 42% in H1. This slowdown is natural, driven by lapping the strong Fair Financing growth launch that began in Q2 2025, plus recent FX devaluation that creates a headwind for reported results. The US continues to grow strongly, with transaction margin as a share of revenue rising from 14% to 23% year-over-year, and new large partnership integrations will compound this growth through H2. Provisions are expected to stay stable or decline slightly, while gain on sale as a share of GMV will hold at Q2 levels.

Q: The downward GMV revision is driven by German softness. What is the product mix in Germany, how has growth changed from earlier expectations, and why doesn't lower German volume (which has a lower margin mix) lead to lower transaction margin guidance? / A: Germany is Klarna's largest volume market, with the majority of volume coming from Pay in Full and Pay Later, which have lower margins than Fair Financing. Softness in German discretionary retail spending that emerged in late Q2 has continued into Q3, and guidance assumes this softness will continue rather than recover through year-end, with very marginal overall growth expected. The slowdown in German volume only modestly impacts overall transaction margin growth, as core growth is driven by the US Fair Financing expansion. H2 transaction margin growth is still healthy at 23%, with the lower year-over-year growth rate primarily reflecting easier comparables from strong H2 2025 growth.

Q: The search for a new CFO is explicitly for a New York-based candidate. Should investors infer changes to strategy around US expansion, capital allocation or funding from this transition? / A: These are planned, orderly transitions launching in early 2027, and Klarna will continue to execute on its existing strategy built by the outgoing leaders. The US is already Klarna's largest market by revenue, with over 30 million consumers, so a stronger New York presence aligns with the market's growing importance to the business. Being based in New York also puts the CFO closer to the investor community and public markets, which improves investor engagement. There are no planned changes to core strategy tied to the leadership change.

Q: What is your strategy for selling receivables via forward flow programs after the accounting change, and how will gain on sale margins evolve? / A: Klarna's core strategy is to remain as capital light and capital efficient as possible. The firm has successfully ramped up Fair Financing forward flow programs, and substantially all new US and German Fair Financing originations will be eligible for sale starting in H2 2026, which prompted the accounting change to fair value recognition at origination. The accounting change pulls approximately 2 basis points of transaction margin forward into 2026, and even after excluding this timing benefit, transaction margin guidance is raised by $40-50 million, reflecting stronger underlying unit economics. The change improves the trajectory of transaction margin per dollar of volume processed.