F-1/A: Klarna Files for IPO, Highlights Growth & AI Efficiency

Klarna Group plc files for its initial public offering, showcasing strong GMV growth, AI-driven operational efficiencies, and a diversified business model despite recent net losses.

Summary

• Klarna Group plc is offering 5,555,556 ordinary shares in its initial public offering, with selling shareholders offering an additional 28,755,718 ordinary shares.
• The estimated initial public offering price per ordinary share is between $35.00 and $37.00.
• The company serves approximately 111 million active consumers and 790,000 merchants in 26 countries as of June 30, 2025.
• Gross Merchandise Volume (GMV) was $112 billion in the last twelve months ended June 30, 2025, representing 13% year-over-year growth (15% on a like-for-like basis).
• Total revenue was $3,010 million in the last twelve months ended June 30, 2025, a 17% year-over-year increase (19% on a like-for-like basis).
• Net loss for the last twelve months ended June 30, 2025, was $100 million, a 29% year-over-year improvement.
• Operating loss improved by 77% from 2022 to the last twelve months ended June 30, 2025, while adjusted operating profit was $151 million, a 148% improvement year-over-year.
• 98% of transactions on the network in the last twelve months ended June 30, 2025, were interest-free.
• The AI assistant, launched in February 2024, handled 69% of customer service chats in the last twelve months ended June 30, 2025, and delivered approximately $39 million in cost savings in 2024.
• Average annual revenue per employee increased from approximately $344,000 in 2022 to $972,000 in the last twelve months ended June 30, 2025.
• Klarna's credit underwriting process resulted in a provision for credit losses of 0.52% of GMV in the last twelve months ended June 30, 2025.
• Consumer deposits reached $14 billion as of June 30, 2025, funding 95% of lending activities.
• The company redomiciled its parent company from Sweden to the U.K. in May 2024 and implemented a twelve-for-one share split in March 2025.

Sentiment

Score: 7

Explanation: The filing presents a strong growth narrative with significant operational improvements driven by AI and a robust market position. However, persistent net losses and increasing costs in certain areas, coupled with inherent risks of a rapidly evolving industry and regulatory environment, temper the overall positive sentiment. The company is clearly on a path to profitability but not there yet.

Positives

• Strong GMV growth of 13% year-over-year (15% like-for-like) to $112 billion in the last twelve months ended June 30, 2025.
• Total revenue increased by 17% year-over-year (19% like-for-like) to $3,010 million in the last twelve months ended June 30, 2025.
• Operating loss improved by 77% from 2022 to the last twelve months ended June 30, 2025, and adjusted operating profit saw a 148% improvement to $151 million.
• Net loss improved by 29% year-over-year to $100 million in the last twelve months ended June 30, 2025.
• AI-driven efficiencies led to approximately $39 million in cost savings in 2024 from the AI assistant and a 25% reduction in repeat inquiries.
• Average annual revenue per employee significantly increased from $344,000 in 2022 to $972,000 in the last twelve months ended June 30, 2025.
• Credit losses are generally lower than the industry average, with provision for credit losses at 0.52% of GMV in the last twelve months ended June 30, 2025.
• High consumer trust and a banking license enable a low-cost, stable funding model based on $14 billion in consumer deposits as of June 30, 2025.
• The company has a diversified revenue model, primarily based on merchant fees, with 98% of transactions being interest-free.
• Klarna's global NPS in September 2024 was 73, significantly higher than the finance industry average of 44 in its top eight markets.
• The Klarna card has boosted average purchase frequency by three times in Sweden and eight times in Germany since its introduction.
• A new forward flow arrangement for U.S. Pay Later receivables, with a maximum program size of $777 million, is expected to begin in Q3 2025.

Negatives

• The company has a recent history of incurring net losses, including $152 million for the six months ended June 30, 2025, and $244 million and $1,035 million in 2023 and 2022, respectively.
• Average Revenue Per Active Consumer (ARPAC) decreased by 11% year-over-year in the three and six months ended June 30, 2025, primarily due to the transition of Stocard customers into the network.
• Provision for credit losses increased by 64% and 39% for the three and six months ended June 30, 2025, respectively, compared to the prior year, driven by changes in market and product mix (e.g., growth in U.S. market and Fair Financing).
• Funding costs increased by 23% and 19% for the three and six months ended June 30, 2025, respectively, partly due to costs associated with a forward flow arrangement and increased consumer deposits.
• General and administrative expenses increased by 38% for the six months ended June 30, 2025, primarily due to higher share-based payments expenses and IPO-related costs.
• A $24 million impairment charge on right-of-use assets was recognized in the three months ended June 30, 2025, due to a decision to reduce office spaces.
• The company identified a material weakness in its internal control over financial reporting related to IT general controls for information systems as of December 31, 2023, and 2022, which was not remediated as of December 31, 2024.

Risks

• Failure to attract and retain additional merchants and grow relationships with existing merchants could adversely affect business.
• Inability to grow the consumer base and retain/grow relationships with existing consumers could negatively impact GMV and revenue.
• Operating without necessary licenses or failing to comply with regulatory authorizations could result in significant legal and financial consequences.
• Inability to maintain or expand arrangements with card networks, PSPs, and other payments ecosystem participants could adversely affect operations.
• Failure to promote, protect, and maintain the brand could lead to loss of merchants and consumers.
• The company has a recent history of incurring losses and may not successfully balance growth and profitability in the future.
• Operating in an industry with substantial and increasing competition may hinder successful competition.
• Inability to keep up with rapid technological developments and continuously innovate could decrease demand for products and services.
• Reliance on AI-powered solutions could lead to operational or reputational damage, competitive harm, legal/regulatory risk, and additional costs.
• Inability to maintain the funding model based on consumer deposits or renew/replace other funding arrangements could adversely affect financial stability.
• The success of the business depends on the underwriting process and ability to accurately price consumer credit risk; incorrect estimates could lead to higher credit losses.
• Failure to grow advertising revenue could negatively impact profitability.
• If loans facilitated through the network do not perform as expected, increased provisions for credit losses may be required.
• Failure to successfully implement, maintain, and improve risk management policies, procedures, and methods could adversely affect business.
• Results depend on prominent presentation, integration, and support of the network by merchants; failure could adversely affect business.
• Reliance on third parties and their systems for various services; failure to perform adequately could disrupt business.
• Arrangements with partner banks may be terminated, and alternative arrangements may not be established on favorable terms.
• Expansion efforts into new markets or offerings may not be successful or may subject the company to increased risks.
• Failure to accurately detect and prevent fraud could lead to losses, regulatory scrutiny, and reputational damage.
• Negative publicity about the company, its management, or the industry could adversely affect business.
• As a holding company, liquidity is dependent on payments from subsidiaries, many of which are subject to regulatory restrictions.
• Potential for additional tax liabilities due to changes in tax laws, audits, or growth.
• Inability to utilize loss carryforwards, deferred interest deductions, and other tax attributes could increase tax liabilities.
• Potential for the company or non-U.S. subsidiaries to be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes.
• The multi-class share capital structure concentrates voting control with pre-IPO shareholders, limiting influence for new investors.
• Substantial future sales of ordinary shares in the public market could cause the trading price to fall.
• Requirements associated with being a public company in the United States will require significant resources and management attention.
• As a foreign private issuer, the company is subject to different U.S. securities laws and rules, which may limit publicly available information.
• Risk of losing foreign private issuer status, requiring compliance with the Exchange Act's domestic reporting regime.
• Subject to various change-in-control or similar regimes, requiring regulatory approvals for significant shareholding changes.
• Rights of shareholders may differ from those typically offered to shareholders of a U.S. corporation.
• As an English public limited company, certain capital structure decisions require shareholder approval, limiting flexibility.
• Forum selection provisions in articles of association could limit investors' ability to obtain a favorable judicial forum.
• Difficulty in obtaining or enforcing judgments or bringing original actions against the company or directors in the United States.
• Transfers of ordinary shares outside DTC may be subject to U.K. stamp duty or SDRT, increasing dealing costs.

Future Outlook

Klarna aims to become consumers' everyday spending and saving partner by expanding its network to every checkout, making the Klarna Card a default payment method, and introducing next-generation digital financial services. The company plans to leverage AI for personalized shopping assistance and continued operational efficiency, expecting to grow market share across channels, geographies, and verticals. Fair Financing is expected to increase its contribution to transactions and GMV, and the company anticipates continued growth in its deposit base and advertising revenue.

Management Comments

• Our mission is to reimagine how consumers spend and save in their daily lives. We help people save time, money and put them in control of their finances.
• Our vision is a world where Klarna empowers everyone, everywhere, through seamless commerce experiences—as a personalized, trusted assistant making financial empowerment effortless.
• We have consistently innovated and challenged the status quo, evolving our network from a consumer-focused payments tool to a global commerce network that enables merchant success.
• Our approach leverages differentiated underwriting capabilities, utilizes bank deposits and other low-cost funding sources and is monetized primarily by driving increased GMV for merchants on our network rather than from only charging interest to consumers.
• We believe that our credit underwriting capabilities, enabled by our proprietary data from approximately 3.0 million transactions made on average per day on our network from 111 million active Klarna consumers, differentiate us from other networks.
• AI allows us to drive scale efficiencies greater than what was previously thought possible, allowing our deep talent pool to focus on innovation and growth.

Industry Context

The announcement aligns with several powerful industry trends: the increasing adoption of digital payments (55% of consumers used digital payments in the last six months as of Feb 2024), a generational shift away from traditional credit card debt (Gen Z Americans' average credit card balance is 50% lower than all Americans as of June 2024), low consumer trust in traditional banks (only 30% of U.S. consumers trusted their bank in 2024), and the rising popularity of digital wallets (expected 20% annual growth through 2027). Klarna's focus on AI-powered solutions and commerce-aligned advertising also taps into the projected 19% CAGR growth for commerce media through 2027, outpacing the broader digital advertising market's 9% growth.

Comparison to Industry Standards

• Klarna's provision for credit losses was 0.52% of GMV in the last twelve months ended June 30, 2025, significantly lower than the 2.6% average for main competitors in Sweden (2024) and 2.92% for commercial banks in the United States (2024).
• The average balance per active Klarna consumer was $80 (Pay Later: $88; Fair Financing: $408) in the last twelve months ended June 30, 2025, substantially lower than the average credit card balance of approximately $6,730 in the United States (2024, Experian).
• Klarna's average loan duration was approximately 40 days (38 days for Pay Later, 180 days for Fair Financing), much shorter than a typical Nordic bank's loan duration of more than five years (2024) and a typical U.S. personal bank loan's average of 2.9 years (2022).
• Klarna's global Net Promoter Score (NPS) in September 2024 was 73, significantly higher than the average NPS of 44 for the finance industry in its top eight markets (March 2023, CustomerGauge).
• Global brand awareness for Klarna was 40% as of December 2024, compared to an average of 28% for its main competitors.
• Merchants and consumers combined paid 1.2 times and 1.5 times more in fees using credit cards than with Klarna in Western Europe and the United States, respectively, in the last twelve months ended June 30, 2025.
• Klarna's U.S. Gini score for Pay in 4 improved from 0.36 in 2019 to 0.72 in Q1 2025, demonstrating a significant advantage over models used by credit bureaus like VantageScore 4.0 (0.38 in Q1 2025).

Management Changes

Corporate Governance

Legal Proceedings

• Received a SEK 500 million (approximately $47 million) fine from the Swedish Financial Supervisory Authority (SFSA) in December 2024 following an investigation into compliance with AML/CFT regulations. The investigation concluded methods for KYC/CDD checks, risk classification, distribution channel risk, suspicious activity reports, and model risk management were insufficient.
• Currently subject to two ongoing investigations by the Swedish Data Protection Authority relating to processes for verifying individual identity for data subject access requests and the use of tracking technologies for pre-filling forms for returning customers.
• In 2022, fined SEK 7.5 million ($715 thousand) by the Swedish Data Protection Authority for inadequacies in the privacy notice, allegedly violating data subjects' right to information under EU GDPR.
• The Swedish Consumer Agency (SCA) completed an investigation relating to marketing requirements and compliance with the Swedish Marketing Act in May 2025 without further action.

Related Party Transactions

• Equity financing rounds from July 2022 to March 2023, where entities affiliated with Sequoia Capital, Victor Jacobsson, Sebastian Siemiatkowski, and Commonwealth Bank of Australia purchased ordinary shares of Klarna Holding.
• Repurchase of $50.0 million aggregate principal amount of convertible notes from Commonwealth Bank of Australia for $30.0 million on September 11, 2023, concurrently with CBA purchasing 144,132 ordinary shares of Klarna Holding for $30 million.
• Partnership agreement with Milkywire AB (founded and owned by Nina Siemiatkowski, spouse of CEO Sebastian Siemiatkowski) since April 21, 2021, for sustainability-related services. Paid $2.75 million to Milkywire and transferred $1.0 million for carbon credit purchases on Klarna's behalf from January 1, 2022, through the filing date. Donated $12.8 million to the WRLD Foundation (founded by Nina Siemiatkowski) in the same period.
• Disposition of Hero Virtual Shopping Platform: Sold all shares in Swift Virtual Shopping SPV LTD to Bambuser AB for $1 million on April 19, 2024. Brightfolk A/S (a wholly-owned subsidiary of Heartland A/S, which controls more than 5% of Klarna's ordinary shares) owns 18.2% of Bambuser's outstanding shares.
• Directors and officers and their immediate family members have used Klarna's payment options (Pay Later and Fair Financing) in the ordinary course of business, under the same conditions as other consumers.

Stakeholder Impact

• Shareholders: New investors will experience immediate and substantial dilution due to the difference between the IPO price and the as adjusted net tangible book value per share. The multi-class share structure concentrates voting control with existing shareholders, limiting new investors' influence. Future share sales could depress the stock price.
• Employees: The company's ability to attract and retain highly skilled employees is crucial for innovation and growth. Changes in tax laws related to equity compensation could make it less attractive. AI-powered efficiency has led to a reduction in the number of full-time employees.
• Customers (Consumers): Klarna aims to empower consumers through seamless commerce, flexible payments, and digital financial services, with 98% of transactions being interest-free. The AI assistant improves customer service efficiency and satisfaction. However, negative publicity or issues with data privacy could erode trust.
• Customers (Merchants): Klarna serves as a growth partner, driving customer acquisition, higher Average Order Value (AOV), and conversion rates. Advertising solutions provide targeted reach. Failure to fulfill obligations or comply with laws by merchants could lead to disputes and chargebacks.
• Regulators: The company operates in a highly regulated environment, subject to extensive banking, lending, consumer protection, and data privacy laws. Non-compliance can result in fines, enforcement actions, and reputational damage (e.g., SFSA fine, DPA investigations).
• Creditors: The company's funding model relies on consumer deposits and debt securities. Market volatility or inability to maintain funding arrangements could impact financial obligations. Debt securities are subject to bail-in provisions under EU resolution regimes.

Next Steps

• Complete the initial public offering and list ordinary shares on the New York Stock Exchange under the symbol KLAR.
• Continue to grow the number of merchants on the network and enable their success, including deepening partnerships with PSPs and expanding into new verticals.
• Further expand into new geographical markets, leveraging the proven strategy for market entry and margin expansion.
• Increase the adoption of the Klarna Card, aiming for it to become the default payment method for consumers.
• Develop next-generation digital financial services, including expanding Klarna Balance and savings accounts.
• Continue to leverage AI for efficiency gains across all operations, from customer service to internal productivity.
• Finalize arrangements with a second bank partner in the United States for Fair Financing products by Q4 2025.
• Remediate the identified material weakness in internal control over financial reporting.

Key Dates

Recommendation

Klarna demonstrates strong underlying business growth, particularly in GMV and revenue, driven by its expanding network, innovative AI solutions, and diversified business model. The significant improvement in operating loss and adjusted operating profit, coupled with lower-than-industry-average credit losses and a stable funding model, are positive indicators. However, the company continues to incur net losses, faces intense competition, and is subject to extensive and evolving regulatory scrutiny, including recent fines and ongoing investigations. The multi-class share structure also concentrates voting power, which may be a concern for new public investors. While the long-term vision and strategic initiatives are compelling, the current financial performance and regulatory landscape suggest a 'hold' position until there is clearer evidence of sustained net profitability and resolution of key regulatory challenges.

Keywords

Fintech, Payments, Buy Now Pay Later, BNPL, E-commerce, Digital Banking, AI, Financial Services, Credit Underwriting, Consumer Finance, Advertising Solutions, IPO, Klarna