Klarna Group plc 2026 Q2 Earnings Call

Sebastian, please go ahead. Good morning, everyone, and thank you for joining.

This was a good quarter. We delivered above the high end of our guidance on every line for the second consecutive quarter. Revenue grew faster than volume and transaction margin dollars, which is our most important metric, grew faster than both. Volume was up 18%, revenue up 27%, transaction margin dollars up 42%. Adjusted operating income reached $91 million, up $62 million year-on-year. Net income was positive at $9 million. Our operating cost grew just 16%. We are investing in our business whilst delivering strong operating leverage, which is what we have been building toward. As I said, we measure our progress in transaction margin dollars. That number shapes how we build products, how we price, and how we underwrite.

Because operating cost grew far slower, growth in transaction margin dollars is what, over time, turns into earnings per share. On our last call, we told you what to expect for the year. Transaction margin dollars compounding at roughly 30% ahead of revenue. That is the shape we described in May, and is the shape the year is taking. I'd like to review our three business areas, which cover the entire consumer wallet. Everyday spend with the payment option of Pay in Full for purchases under $75 with high frequency. In this business area, we monetize through payment fees, subscriptions, and deposit interest. Transactions here are no balance sheet risk. Pay in Full contributed $3.6 billion of volume this quarter, and subscriptions reached 2 million subscribers. Lifestyle Spend or Pay Later is the payment option for purchases between $75 and $500 a purchase.

This is our marquee zero interest, short-term fixed installments product. It is the equivalent of, and has the economics of, charge cards over 30 to 90 days. Spend centric rather than lend centric, and the reason why our book turn is 10 times a year. Pay Later grew 13% this quarter. Big Ticket Spend or Fair Financing, which is designed for purchases between SEK 500 to SEK 10,000. These are fixed term installments and it's our fastest growing product, up 82% year-over-year to SEK 4.7 billion, offered by 256,000 merchants now, up from 151,000 when we first spoke to you in November. In the U.S., it more than doubled. We're happy with the balance between these three, making sure we have an attractive offer for every purchase our customers make, and with the effect it has on transaction margin dollars.

Worth highlighting, Fair Financing is now 13% of our total volume. In the early 2010s, it was roughly a fifth of Klarna's volume, and in Sweden, our most mature market, it held 16%-20% for a decade. So Fair Financing today, share of volume is still lower than historical averages. The average Fair Financing balance is SEK 400 on a fixed term with a known payoff date, against a $6,700 average American credit card balance, which again, reflects the fact that our customers borrow responsibly. We believe every market we operate in follows the same path and has the potential for strong transaction margins. Volume first, then scale, then the margin follows. We have run that sequence enough time to know what it looks like. In total, transaction margin reached 43% of revenue, up 4.5 points in 12 months.

The U.S., our fastest growing large region this quarter, went from 14% to 23% in a year. Global ex-U.S. sits at 54%, up four points. The markets where we have operated longest run at roughly 60%. This quarter, the margin expanded while volume kept growing in the U.S. and everywhere else, both at once. We measure our progress in transaction margin dollars, and we continue to convert more of our volumes into them. Five business updates to highlight this quarter. Klarna membership reached 2 million paying subscribers, eight times a year ago, and subscription revenue grew over 600%. Recurring revenue like this is high margin and worth noting, almost no GMV with it. This decouples our growth over time from GMV. It grows transaction margin dollars directly, part of how transaction margin dollars grow faster than volume.

The Klarna Card reached 6.5 million active users across 16 countries, up from 1.3 million a year ago. On our first earnings call in November, that number was 3.2 million. It has more than doubled in nine months. Last week, we launched new membership plans built on what consumers actually want: cashback and benefits. In May, we told you J.P. Morgan Payments would launch later this year. It went live on August 6th, ahead of peak season. J.P. Morgan Payments is the largest merchant acquirer in the United States, processing $2.6 trillion of payments a year, and every merchant on their platform, from boutiques to big box, can now offer the full Klarna suite, Pay in 4, Pay Later, and fixed term installments through their existing setup with no new integration. Recently announced that Klarna is the partner for Apple Upgrade, a new device leasing program available from Apple.

This is a natural extension of our big-ticket strategy. Consumers apply at Apple and then pay and manage with the Klarna app, creating a direct relationship with new U.S. consumers that supports Klarna's ability to grow engagement, RPAC, and profitability. Consumer credit keeps performing better. Delinquencies improved again this quarter, and provisions have declined as share of volume every quarter since our first report as a public company. Before a handover, I would like to mention two things. First, we have adjusted our annual volume outlook to reflect a softer than expected German consumer and changes in FX. Niklas will explain both. Second, in early 2027, we will make two leadership transitions. Niklas Näglén, our CFO, after six years at Klarna and an extraordinary period of growth and transformation. He told me with plenty of runway, and I respect that. This is an early heads-up, not a goodbye.

Nothing changes tomorrow. Niklas remains CFO and will continue to lead the finance organization and investor engagement, supporting a transition into next year, including in his capacity as board member. The search for a New York-based CFO is underway. David Sandström, our CMO for nine years, will also hand over during next year in the same planned way. In those nine years, David built one of the most recognized brands in global finance, and he hands it over the same way Niklas hands over the numbers, deliberately and from strength. Both Niklas and David have been great contributors, and we are grateful for all the work. Nothing about them changes what we are building or how we run the company. The best evidence is the quarter we just delivered and the transaction margin dollar outlook we are raising today. Niklas will take you through it.

Thanks, Sebastian. It has been an extraordinary six years, and I am deeply proud of what we built together. I am very pleased we have been able to plan the transition in a way that gives Klarna plenty of continuity. Now to the numbers. Let me take you through the financial highlights of the quarter and then spend some time on our outlook. Starting with the P&L summary for the second quarter. The business executed strongly, and we delivered above our guidance. Total revenue was $1 billion and $42 million, up 27% and ahead of volume growth of 18% as our mix continued to shift towards higher-yielding products. Transaction costs were $596 million, up 17%, well below revenue growth, reflecting improved underwriting and scaling of our offloading programs. Transaction margin dollars were $446 million, up 42%, well above the $375 million to $395 million we guided in May.

Our transaction margin dollars was 42.8% of revenue, up approximately 450 basis points from a year ago, with both the U.S. and our global ex business expanding. Non-transaction related operating expenses were $490 million, up 16%, as we invested ahead of peak season and ramped marketing around the World Cup in the U.S. Our operating expenses growth is well below our revenue and TMD growth, and we expect to continue that, so TMD conversion is high. That gap of 42% TMD growth against 16% operating expense growth is the operating leverage Sebastian described. Three years ago, our transaction margin did not cover our adjusted operating cost. Today, roughly $0.56 of every additional transaction margin dollar reaches the operating line. That takes us to operating income of $27 million, an improvement of $73 million, and an adjusted operating income of $91 million, up $62 million.

Net income was SEK 9 million, with the basic diluted EPS of SEK 0.01 against a negative SEK 0.14 a year ago. We are delivering real operating leverage with volume, revenue, transaction, margin, and profit each growing faster than the last. Total GMV in the second quarter was SEK 36.6 billion, up 18% year-over-year. This was 15% on a like-for-like basis, reflecting the lapping of the Q2 2025 Fair Financing launch and less of an FX tailwind than the first quarter. GMV growth was broad, and we delivered growth in every geography. The U.S. delivered GMV of $7.9 billion, up 27% year-on-year, and was our fastest-growing large region. Global ex-U.S. GMV was SEK 28.8 billion, up 15%, or 12% on a like-for-like basis. During the quarter, some markets, most notably Germany, grew at a more measured pace, whilst our performance across our more mature Nordic markets accelerated.