Detailed narrative
Strong Q2 Performance and Operating Leverage
Klarna delivered a strong Q2 FY26, with revenue growing 27% to $1.042 billion, outpacing volume growth of 18%. Transaction margin dollars (TMD) surged 42% to $446 million, significantly exceeding guidance. This performance demonstrates strong operating leverage, as operating costs grew only 16%, leading to adjusted operating income of $91 million, up $62 million year-over-year, and positive net income of $9 million.
Product Mix Driving Margin Expansion
The shift towards higher-yielding products, particularly fare financing, is a key driver of margin expansion. Fare financing volume grew 82% year-over-year to $4.7 billion, now representing 13% of total volume and offered by 256,000 merchants. Pay in full contributed $3.6 billion of volume, and Pay Later grew 13%. This diversified product portfolio ensures an attractive offer for various purchase sizes and contributes to the increasing transaction margin dollars.
U.S. Market Growth and Strategic Partnerships
The U.S. remains Klarna's fastest-growing large region, with GMV up 27% year-on-year to $7.9 billion and U.S. revenue growing 37% to $376 million. Strategic partnerships, such as the integration with JPMorgan Payments (processing $2.6 trillion annually) and the Apple Upgrade program, are expected to further accelerate U.S. volume growth in H2 FY26. These initiatives aim to deepen customer relationships and expand Klarna's market presence.
Membership and Card Expansion
Klarna membership reached 2 million paying subscribers, an 8x increase from a year ago, driving subscription revenue growth over 600%. The Klarna card also saw significant adoption, reaching 6.5 million active users across 16 countries, more than doubling in 9 months. These recurring revenue streams and increased engagement are crucial for decoupling growth from GMV and enhancing transaction margin dollars.
Full-Year Guidance Revision and German Market Softness
Klarna revised its full-year GMV guidance down to $149 billion-$151 billion (from $155 billion) and revenue to $4.08 billion-$4.16 billion (from $4.34 billion). This adjustment is primarily attributed to a softer-than-expected German consumer market, where retail sales grew less than 1% in H1, and FX movements. The company assumes Germany's softness will persist, while U.S. volume assumptions remain strong.
Fair Value Accounting Change and Impact
From H2 FY26, Klarna will manage a larger share of its U.S. and German fair financing books with intent to sell, shifting new originations from booking provisions upfront to fair value through P&L. This change is presentational, reducing reported revenue and transaction costs by approximately 10 basis points of GMV, but the margin line remains unaffected. The underlying economics are expected to contribute an additional $40 million-$50 million in transaction margin dollars for the year.
Leadership Transitions and Continuity
CFO Niclas Neglen and CMO David Sandstrom will transition out of their roles in early 2027, with a search for a New York-based CFO underway. These planned transitions are described as long-term forward planning, with both executives remaining in their roles to ensure continuity through next year. Management emphasized that these changes do not alter the company's strategic direction or operational execution.