Klarna Group - Earnings Call - Q2 2025

Transcript

Speaker 1

Hello, it's me, back again to walk you through the highlights of our Q2 results. Let's dive in. More people are paying on time, and late payments continue to go down. A clear sign that our underwriting is making the right decisions for our customers and our business. We're growing at pace. We've reached 111 million consumers and 790,000 merchants, adding over 200,000 in just the past year. That's resulted in GMV like-for-like growth rising from 13% in Q1 to 19% in Q2, while U.S. GMV rose 37%. All that delivered over $300 million in transaction margin, and Q2 marked our fifth consecutive quarter of operational profitability. And what's powering all of this? Our AI-first strategy. By embedding AI across the business, we've now hit a major milestone: $1 million in revenue per employee, up from $369,000 just two years ago. Real results, real impact, really exciting. Bring on the reverse.

Niclas Neglén (CFO)

Hello, I'm Niclas, the CFO here at Klarna. I want to give you a brief update on the 2Q results, a quarter that is marked with an acceleration of growth. This momentum reflects a strategy we've consistently followed over the past two years, as well as the benefits of reaching the scale we now have. Having built a large global network, we're now seeing the rewards, supported by a healthy consumer environment and continued improvements to our bottom line. So what's been driving this growth? In addition to growing our loyal consumer base, we've seen the world's largest merchants continue to choose Klarna. Today, four of the top five merchants in the U.S. work with Klarna, including eBay and Walmart. We've also reimagined our partnership with PSPs, a strategic effort over the last three years, which allows us to be part of the default offering on these PSP networks.

Our first such partner to start ramping this distribution up is Stripe, and we've seen materially accelerated growth this quarter as a result. Similar agreements are in place with Worldpay, Nexi, and JPMorgan, which will all start to kick in over the coming quarters. We continue to ensure all Klarna products are available at all merchants, which has led to a 108% increase in the adoption of our Fair Finance product across our network. Given that Klarna continues to expand as an everyday spending partner, perhaps most exciting is the momentum behind the Klarna Card. It now accounts for 10% of all of our transactions as we start rolling it out across more markets. The Q2 growth in revenue is reflective of all these long-term strategies playing out.

As you can see, our revenues grew to more than $800 million, and we have a 20% growth in revenues on a like-for-like basis. And growth isn't just limited to revenue. Transaction margin dollars before provisions for credit losses grew 19% year-over-year on a like-for-like basis, an eight-point acceleration from the previous quarter. At the same time, transaction margins, including provisions for credit losses, grew 4%, a short-term impact of the accelerating adoption of our Fair Finance product. Let me explain. Fair Finance is a term loan product where we lend to consumers for higher value purchases, paid back over an average of 6-12 months. In this case, revenue is recognized gradually over the loan duration. So, for example, let's say that a customer takes out a six-month term loan. The revenue will be booked over the six months of the loan.

However, the provisions for credit losses will be booked on month one. Because we're growing financing over 100%, we're only seeing the early stages of our revenue now, but already booking all the provisions. Over time, the margin from this product is realized as more revenue flows in. In contrast, when loans are funded by outside investors and sold right after they've created, you record a profit from the sale immediately, but at a discount to the total you could have earned by keeping them on your books. When looking at credit losses as a percentage of GMV, they have grown over the period from 0.42%-0.56%, where the main driver is the increased provisions for Fair Finance, which grew eight bps, while the actual loss rates remain stable over the period.

In fact, when looking at the current health of the consumer, we focus on the actual losses, so-called write-offs, rather than the provisions. These, as you can see on the right-hand side, have actually improved over the period from 0.48%-0.45%. Delinquencies are an important measure to track the underlying health of our consumers. And you see here the continued improvement of our delinquency trends as we scale with more consumers and expand our reach. In the U.S., as you can see on the right, among consumers using our Fair Finance loan, 2.9% are late, where 1.3% are late for the buy-now-pay-later loans. These levels are in line with our expectations and below what you see in the credit card industry. Overall, in 2Q, we continued to deliver an expanding revenue line while keeping our adjusted operating expenses in line.

Revenue grew 20%, and an adjusted operating cost grew 3% over the period on a like-for-like basis. So, to sum up, the significant acceleration in our growth metrics in the second quarter versus our first quarter has driven adjusted operating income from $3 million in Q1 to $29 million in Q2. This is driven by the execution of our key strategies. The benefits of our scaled network are continuing to create value to our consumers and partners alike. Thank you so much for listening.