$20B IPO Prospect Klarna Remains Under Close Watch After Q2 Report

Writer: Trevor Johnson

“A record number of Klarna transactions have been paid on time or early in Q2’25, and credit losses remain low.” — Sebastian Siemiatkowski, CEO of Klarna

Klarna’s second quarter of 2025 is a tale of progress and pressure in equal measure. The Swedish BNPL giant reported $823 million in revenue, up 20% year-over-year, yet saw net losses more than double to around $53 million. Behind those numbers lies an aggressive expansion plan—deep U.S. market penetration, merchant partnerships at unprecedented scale, and a restructuring strategy tied closely to artificial intelligence.

The delinquency rate of 0.89%, down from roughly 1.03%, marks a step in the right direction—but it’s hardly a breakout figure. Repayments are improving, yet the gains are incremental and come against a backdrop of customers still facing substantial financial headwinds. Klarna’s core audience—young consumers navigating inflation, student debt, and stagnant wages—continues to lean heavily on BNPL as a budgeting tool. While many purchases are marketed as interest-free when paid on time, missed or extended payments can carry steep costs, with APRs sometimes reaching upwards of 30%. For these consumers, spreading payments over time often begins as a matter of convenience but frequently becomes a financial necessity. When mismanaged, it can turn into a costly burden—posing long-term risks for both the borrower and the lender.

The Merchant Machine Driving Klarna’s Growth

At its heart, Klarna is a payments company built around one core promise: flexible repayment. Whether it’s “pay in 4” installments or longer-term financing, this model not only appeals to cash-strapped consumers but also fuels the company’s business with merchants. The bulk of Klarna’s revenue is generated through its merchant partnerships, which provide income from transaction fees, interchange, and financing charges on each purchase processed through its platform. In Q2 alone, Klarna added 202,000 new merchants, ranging from small e-commerce shops to corporate giants like Walmart and eBay. These integrations do more than increase transaction volume—they place Klarna directly at the checkout, where it can collect valuable data, surface targeted offers, and build stickier consumer loyalty on behalf of its retail partners.

Yet this merchant growth comes at a cost. Co-marketing campaigns, promotional financing, and tailored tech integrations all weigh on operating expenses. For merchants, Klarna’s BNPL drives higher conversion rates and average order values, but those economics are subsidized in part by Klarna’s balance sheet—a subsidy that could narrow as the company moves toward an IPO and faces pressure to turn adjusted profitability into GAAP profit.

AI Ambitions and Human Trade-Offs

Klarna has been vocal about its AI transformation, showcasing an AI-powered CEO avatar and citing $1 million in revenue per employee as proof of efficiency gains. Yet beneath the headlines, questions remain about whether the technology is truly mature enough to replace the scale of human labor Klarna has cut.

Since its aggressive automation push, Klarna has reduced headcount by roughly 40%, eliminating thousands of roles—many in customer service and marketing. While AI can handle scripted interactions and repetitive tasks, it still struggles with the nuance, empathy, and situational judgment that high-value customer engagements require.

Earlier in 2025, Siemiatkowski himself admitted that prioritizing cost savings over service quality had consequences. The company has since announced plans to reintroduce human support through a flexible, gig-style model—a move that tacitly acknowledges the limits of full automation in a service-heavy business.

Revenue Up, Losses Up More

The most glaring imbalance in Q2 is the gap between growth and profitability. While revenue climbed 20%, net losses more than doubled year-over-year. The company attributes much of the red ink to higher credit-loss provisions ($174 million, up from $106 million), a $24 million restructuring charge tied to downsizing office space, and the continued cost of funding its growing loan book.

On paper, Klarna posted an adjusted operating profit of $29 million, but public-market investors will be far more interested in whether that figure can translate into sustained, bottom-line profitability.

The IPO Question

Klarna’s IPO plans remain fluid. A planned listing earlier this year was paused amid broader market volatility and geopolitical trade tensions. With improving repayment rates, strong merchant acquisition, and a sharpened efficiency narrative, Klarna could move as early as September. But going public will put its economics under a microscope: Can the company balance rapid expansion, AI integration, and merchant incentives without eroding margins?

A Generation’s Credit Tool—But at What Cost?

For Gen Z and younger millennials, Klarna’s model feels like financial breathing room. Installment payments remove the sting of large purchases, spreading them over weeks or months without interest—at least up front. The challenge for Klarna is keeping that promise without overextending its own balance sheet.

Q2 paints a picture of a company straddling two realities: a brand beloved by consumers and merchants, and a business model still wrestling with the cost of its own ambition. For all its innovation in AI, partnerships, and product diversification, Klarna’s path forward will depend on proving that growth can coexist with stability.

References:

• Reuters – Q2 revenue, loss, user counts, IPO timing.

• Financial Times – Provisions, delinquency, restructuring charges, loan mix.

• Payments Dive – Merchant growth, adjusted profit, CEO quote.

• Observer – AI initiatives, efficiency metrics.