BMO Starts Coverage of Klarna with Market Perform Rating and $16 Target

BMO Capital's Coverage Initiation#

BMO Capital has recently initiated coverage on Klarna (NYSE:KLAR), assigning it a Market Perform rating and setting a price target of $16. Currently, Klarna's stock is trading at $14.55, reflecting a significant decline of 68% over the past year.

Klarna's Long-Term Potential#

BMO views Klarna as a potential long-term winner in the market, thanks to its strong brand recognition and unique underwriting capabilities. The firm believes that the stock's valuation is becoming more attractive following a steep decline since its initial public offering (IPO). According to analysis, the stock is slightly undervalued, with a fair value estimate of $15.87.

Management's Strategy and Risks#

The analysts noted that Klarna's management is focusing on longer-duration credit products. While this strategy could enhance earnings, it also introduces higher volatility and credit risk, which may concern some investors. BMO Capital is looking for more evidence that Klarna can achieve monetization without sacrificing risk management.

Recent Developments at Klarna#

In recent news, Klarna reported a remarkable 75% increase in listings through its in-app resale feature over the last 13 months. This feature, which started in Sweden, is now available in 15 markets, allowing users to resell items directly from their purchase history through platforms like eBay and Poshmark. Additionally, Klarna has partnered with Aven Hospitality to offer flexible payment options for bookings at 10,000 hotels, enabling travelers to pay in full, split costs into interest-free installments, or select long-term financing.

Klarna has also teamed up with German gaming retailer Mindfactory to provide various payment methods, including interest-free installments. Furthermore, the company's antitrust case against Google has been postponed, with a new judgment date set for June 2026. Klarna is also expanding its partnership with Douglas Group to offer payment options in Italy and Spain, allowing customers to split purchases into interest-free installments. These initiatives demonstrate Klarna's commitment to broadening its services and partnerships in various markets.