Brokerages back Klarna's growth story, flag higher costs

By Joel Jose

(Reuters) -Brokerages are largely bullish on buy-now-pay-later (BNPL) lender Klarna as they begin coverage on Monday, though some warn that rising costs could pressure near-term profitability.

Shares of the Swedish fintech are up 6.5% in early morning trading.

Klarna made its long-awaited U.S. public debut last month at $52 a share, above its initial IPO pricing of $40, after shelving its listing plans in April amid tariff-driven market turbulence.

The offering capped the company's years-long push to go public and signaled a broader resurgence in the U.S. IPO market.

Goldman Sachs, J.P. Morgan and Morgan Stanley were among the underwriters for the offering.

"We view Klarna as the market leader in BNPL solutions, with a particularly strong franchise in Europe, where we believe Klarna is a new, emerging closed loop payment scheme," analysts at Goldman Sachs said in a note.

Klarna is the largest Swedish company to list its shares in the U.S. since music streaming giant Spotify in 2018.

Founded in 2005 when online shopping was still in its early stages, Klarna has grown into a major player in BNPL, offering short-term installment options - a model that gained significant traction during the COVID-19 pandemic.

Despite being profitable for its first 14 years, Klarna has faced losses in recent years as it expanded in the U.S. and other markets.

Analysts at Citigroup said short-term profitability could be hit by rising costs in Klarna's growing Fair Financing business, but they expect margins to recover by full-year 2026 as that segment matures and the company deepens its presence in the U.S. and Europe.

Shares of the company have fallen about 22% from their September 10 opening price and have traded as low as $35.60, amid a broader sell-off in fintech stocks.

"Ability to attract and retain higher income and higher FICO consumers will be key to long-term success", analysts at Morgan Stanley noted.

FICO is the most widely used consumer credit score in the United States.Some analysts said Klarna trades at a "healthy" discount to U.S.-based rival Affirm, whose shares have surged about 23% this year, presenting a longer-term opportunity to close the gap though it may require multiple quarters of solid execution.

(Reporting by Joel Jose in Bengaluru; Editing by Tasim Zahid)