Klarna stock has crawled back ahead of earnings: buy, sell, or hold?

Klarna stock has rebounded modestly ever since publishing its financial results in February this year. It has rebounded from the year-to-date low of $12.30 in February to the current $20.68. This rebound will be put to the test next week when the company publishes its financial results, which will provide color on its business.

Klarna is benefiting from the ongoing BNPL demand

Klarna is a top player in the buy now, pay later (BNPL) industry, where it competes with top companies like Affirm and Block’s Afterpay.

While it uses a similar business model to Affirm, it has some differences, including the fact that it has a banking license in Europe and has applied for one in the United States. 

Klarna’s business model is that it allows customers to buy for products and then allowing them to pay in installments. It makes money by taking commissions from its retailers for the sales it facilitates. 

The company also makes money from interest, advertising, subscriptions, and some receivable sales. This model creates a mutually beneficial relationship since merchants receive sales, while its customers are able to spread their payments for a while.

Its most recent results showed that the company continues to grow as demand for credit jumps. Klarna’s active customers jumped by 21% in the first quarter to 119 million, while the number of merchants surged by nearly 50% to 1.07 million.

Its gross merchandise volume (GMV) rose by 33% to $33 billion. Klarna gets the cash to fund this GMV from customer payments and deposits since it is a regulated bank in Europe. 

Klarna’s revenue jumped by 44% to over $1 billion, while the net income rose to $1 million. That is a sign that the company is now becoming more profitable, a trend the management expects to continue.

Most importantly, its delinquency improved in the first quarter, helped by the improving underwriting models. This trend will likely continue as paying early is usually mutually beneficial to customers as well.

Earnings to show growth remained

The upcoming earnings report is expected to show that its revenue continued growing in the second quarter. Analysts expect the figure to come in at $996 million, closer to the upper side of the guidance. Its guidance was for the revenue to come in between $960 million and $1 billion. Klarna tends to be highly conservative, meaning that its revenue will be higher than its guidance. 

Most analysts have boosted their forecasts for the KLAR stock price. For example, in July, Goldman Sachs, UBS, and JPMorgan boosted their targets to $25, $23, and $22, respectively. 

Klarna stock price technical analysis

KLAR stock chart | Source: TradingView

The daily chart shows that the KLAR stock has rebounded gradually in the past few months. It formed an ascending channel and is now slightly above its lower side. It has moved slightly above the 50-day Exponential Moving Average (EMA).

The Percentage Price Oscillator (PPO) has continued rising and is above the zero line. However, it has formed a bearish flag pattern. Therefore, the stock will likely have a bearish breakout, potentially to the key support level of $12.30. The bearish outlook will become invalid if it moves above the upper side of the channel.