Klarna (KLAR) shares took a major hit on Thursday, closing almost 26% down despite the company achieving its first billion-dollar quarter. The buy now, pay later (BNPL) firm faced a sell-off from investors due to a decline in profitability metrics in the fourth quarter and disappointing guidance for Q1.
After this significant decline following the earnings report, Klarna’s relative strength index (14-day) dropped to about 18.39, indicating oversold conditions that often lead to a relief rally. However, analysts are cautious about buying at current levels as Klarna stock has plummeted by more than 50% year-to-date.
Although Klarna reported strong revenue, the company recorded a loss of $26 million in its fiscal Q4 as credit loss provisions rose by over 6% sequentially to approximately $250 million. This increase reflects the credit risk inherent in the BNPL sector. Despite a 32% year-over-year increase in gross merchandise volume, Klarna’s management anticipates a deceleration later in the year due to challenging comparisons.
The shift from rapid growth to more normalized expansion indicates a maturing company that may experience slower growth as it scales through the rest of 2026. Klarna’s revenue per active consumer remained stagnant at $30 in the fourth quarter, suggesting that spending per user has reached a plateau. Additionally, the company’s Q4 adjusted operating profit fell nearly $20 million below Street estimates, with management not foreseeing any improvement in the near future.
In the current quarter, Klarna expects the adjusted operating profit to be at most $35 million, significantly lower than the $67 million forecasted by analysts. While Klarna’s partnerships with major payment processors like Worldpay, JPMorgan, and Stripe indicate long-term growth potential, the company’s executives cautioned that merchant activation could take time, delaying the top-line benefits from these alliances.
Overall, Klarna’s Q4 release suggests that it is an expensive stock to own, trading at about 38 times forward earnings. Analysts had a consensus “Moderate Buy” rating on Klarna with a mean target price of nearly $43 leading up to Thursday. However, it is likely that some analysts will revise their estimates downward following the disappointing Q4 results.
In conclusion, the market sentiment towards Klarna remains negative as the company faces challenges with profitability metrics and future growth prospects. Investors should exercise caution before considering buying the dip in Klarna stock.
