Why Analysts Are Upgrading Ratings After Klarna's IPO

Key Points

• Klarna saw massive investor interest surrounding its September IPO, and many analysts across Wall Street have bumped up their ratings since that time.
• The company's growth trajectory in the BNPL space is impressive and it has ample room to expand into new areas in order to become a broader financial services firm.
• At the same time, dangers from intense competition, credit risk, and other factors are worth keeping in mind.

Buy now, pay later (BNPL) financial solutions company Klarna Group NYSE: KLAR has only been trading publicly since early September 2025, and shares are still finding their footing amid post-IPO volatility. There's an argument to be made that investors have an opportunity since Klarna has fallen below its IPO price of $40 after shares initially surged to about $52 following the IPO. In the meantime, analysts from Wall Street firms, including Bank of America, JPMorgan, Wedbush, and others, have all initiated coverage with Buy or equivalent ratings, signaling optimism.

For everyday investors, it's key to assess Klarna's potential both within and beyond the growing BNPL industry. Indeed, analysts with a bullish perspective on KLAR shares may be looking ahead to the company's potential as a much broader financial services firm with—for now, at least—a compelling case for value-minded investors. A first hurdle for the company will be a return to its IPO price and beyond, and analysts see this as easily achievable based on a consensus price target of close to $50 per share.

Klarna Is Increasingly Dominant in the BNPL World, But Hurdles Remain

Klarna has become increasingly dominant in the BNPL space as it has spurred 38% year-over-year (YOY) growth in its U.S. business, and, thanks to a recent report, gross merchandise volume (GMV) reached more than $31 billion in the latest quarter. Partnerships with major retailers like Gap Inc. NYSE: GAP and Walmart Inc. NYSE: WMT are understandably essential to this rapid growth, helping to fuel Klarna's user base of more than 111 million active users. The company's closest rival in BNPL, Affirm Holdings Inc. NASDAQ: AFRM, has some 23 million customers.

BNPL is a challenging space, though, despite its rapid proliferation in recent years. For one thing, companies in this sphere are heavily reliant on high transaction volume in order to generate revenue, as margins are quite narrow. The BNPL industry is also subject to significant regulatory oversight, and changes in legislation can have a major impact on businesses. This is all to say that a company like Klarna has numerous incentives to expand within and beyond the BNPL world.

Expansion Opportunities Within the BNPL Space

Growth within BNPL is likely to come from regional expansion and continued adoption by more merchants on a global basis. Klarna's European business has room for further growth, and the company has yet to expand to many other regions. The firm's new Klarna Card, a payment card launched last quarter in the United States, has the potential to bring in new customer groups in each of those markets.

Klarna's use of AI is also likely to drive improvement in its BNPL business, specifically with regard to margins. Even incremental increases in transaction margins can translate to a significant boost to profitability when multiplied across a growing volume of purchases.

Payments and Advertising Are Other Possible Targets

Competition in the BNPL sphere is intense, both from other specialized firms like Klarna and legacy fintech and financials companies jumping on the opportunity. On top of that, Klarna faces significant credit risk. Both of these factors may help to push the company toward a broader financial services model, with payments and advertising as two key growth areas for investors to watch.

Klarna's payments business, including its recently launched credit card and a one-time payment card, represents a miniscule portion of the massive market worth more than half a trillion dollars. Advertising is another major business for many fintech firms and one that Klarna has only begun to explore. Bullish analysts may see a path forward for the company to leverage its sizable user base to expand into either or both of these markets with success.

To be sure, Klarna faces noteworthy challenges in its bid to increase its share of the financial services space, and the firm has not yet achieved consistent profitability. Investors should keep in mind that, regardless of analyst hype surrounding this new-to-market name, Klarna carries with it a fairly high degree of risk. Of course, with that risk comes the potential for major capital appreciation as well, for investors with the appropriate level of tolerance.