Klarna Group plc delivered a second-quarter report card defined by improved profitability but trimmed scale, with gross merchandise value (GMV) rising 18% year over year to $36.6 billion and revenue climbing 27% to $1.042 billion. Transaction margin dollars jumped 42% to $446 million, while adjusted operating profit surged 214% to $91 million. The company posted net income of $9 million, a sharp swing from the $53 million loss recorded in the same period last year.

However, investors zeroed in on the full-year outlook, as management lowered GMV guidance from above $155 billion to a range of $149 billion to $151 billion, and trimmed revenue expectations from exceeding $4.34 billion to between $4.08 billion and $4.16 billion. The stock traded down roughly 19% to 23% during the session, closing near $15.06, a steep drop of about 23% from the prior day's $19.51. Year-to-date, shares have fallen roughly 30% to 40%. Klarna even used a CEO artificial intelligence avatar to present the earnings update.

Where the guidance cut comes from

Management attributed the revision to two distinct factors. Approximately $600 million stems from currency translation effects, while the remainder reflects a more cautious stance on Germany, Klarna's largest market by transaction value. Chief Financial Officer Niclas Neglén told analysts that discretionary spending in Germany softened toward the end of the second quarter and remained weak in early third-quarter trading. He noted that the guidance simply assumes continued softness in Germany rather than any recovery. Assumptions for the United States remain unchanged, with the region still the fastest-growing major market. U.S. GMV increased 27% to $7.9 billion in the quarter, with revenue up 37% to $376 million, and management expects five large merchant integrations in the second half.

The macro backdrop in Germany aligns with the company's commentary, as real retail sales growth came in below 1% in the first half. Klarna now frames Germany's full-year growth as "roughly flat," effectively removing any expectation of an upward contribution to group GMV from that market. The third-quarter outlook is equally cautious, with GMV projected at $35 billion to $36 billion, revenue between $940 million and $980 million, and adjusted operating profit of just $5 million to $15 million, as the company plans to increase spending on payment service provider integrations and marketing.

Profitability metrics raised as unit economics improve

Despite the reduced volume outlook, the transaction profit guidance was lifted to between $1.62 billion and $1.65 billion, representing approximately 1.09% of GMV, up from the previous "above 1.04%" threshold. Adjusted operating profit guidance remains unchanged at $280 million to $300 million. Management emphasized that they measure progress through transaction profit rather than GMV. In the second quarter, transaction profit accounted for 42.8% of revenue, an improvement of more than 4.5 percentage points year over year. Credit provisions as a share of GMV stood at 0.52%, and U.S. Fair Financing delinquencies over 30 days declined 20 basis points sequentially.

The product mix explains the dynamic of slower volume growth combined with fatter margins. Fair Financing, which offers installment plans ranging from $500 to $10,000, grew 82% year over year to $4.7 billion, representing about 13% of total GMV. Pay Later products grew 13%, while one-time payment transactions contributed $3.6 billion. Klarna's card base reached 6.5 million users, with approximately 2 million members and subscription revenue up more than sixfold year over year. The merchant count rose 54% to 1.208 million, while active consumers totaled 120 million, with revenue per user up 24%. The company also recorded a $69 million gain from receivable sales and expanded its forward flow agreements.

Accounting changes will alter the second-half picture

New Fair Financing originations in the U.S. and Germany will now be measured at fair value, shifting interest income from amortization over the loan term to upfront recognition, with related provisions presented net within transaction costs. This change will reduce revenue by approximately 10 basis points of GMV while providing a positive timing benefit of roughly 2 basis points to transaction profit. Excluding this factor, the implied take rate is approximately 2.84% to 2.85%, still above the May outlook. Investors need to separate the lower revenue guidance into three components: real volume, currency effects, and accounting timing.

CFO and CMO to depart in early 2027

Alongside the earnings release, the company announced that CFO Neglén, who has served for six years, and Chief Marketing Officer David Sandström, who has been in the role for nine years, will both leave in early 2027. Motley Fool characterized the combination of weak guidance and executive turnover as a double blow on the day. For a newly public company, the simultaneous scheduled departures of both the finance chief and brand leader amplify market concerns about execution continuity. Klarna confirmed that a search for a new CFO has been initiated.

Peer reaction suggests the selloff is stock-specific

247 Wall St noted that Affirm and PayPal were roughly flat or higher on the day, indicating that investors view Germany's volume weakness as a Klarna-specific exposure rather than a signal of a peak in the broader buy now, pay later sector. Klarna's year-to-date decline is significantly steeper than most peers, with the valuation already pricing in slowing growth. This latest move represents another downward revision to growth assumptions, coming on the heels of improved profitability.