Sezzle did $209M of free cash flow last year. Klarna lost money on 8x the revenue. The cheaper stock isn’t the obvious one.

I've been watching the BNPL space for over a year. Early last year I had the conviction Sezzle was the obvious value play: profitable, growing fast, subscription-based revenue. Sezzle went from ~$40 to ~$180 and I regret not pulling the trigger.

When Klarna IPO'd in September 2025 at $45, I passed. Too expensive. Then the stock halved. I started buying in December 2025 at $29 and I’ve been buying every two months. Bought again in February 2026 at ~$19 and recently bought again when the stock was trading around $13. Current average cost is around $18. Stock now trades at ~$14, and is down ~75% from its IPO high.

This post is my attempt to stress test my own thesis. I'm picking Klarna over the much more profitable Sezzle and I want to lay out why.

1. The numbers that favor Sezzle

Both just reported their FY2025 results in February 2026.

Sezzle (FY2025):

-Revenue: $450.3M, growing 66.1% YoY

-Q4 revenue: $129.9M, up 32.2% YoY

-GAAP net income: $133.1M (29.6% margin)

-GMV: $3.94B for the year, up 55.1% YoY

-P/E: ~22x

-Market cap: ~$2.5B

2026 guidance: 25-30% revenue growth, $170M adjusted net income (31% YoY growth), $4.70 adjusted EPS

Klarna (FY2025):

-Revenue: $3.5B, growing 25% YoY

-Q4 revenue: $1.08B (first billion-dollar quarter), up 38% YoY

-Net loss: ($294M), or ($0.79) per share for the year

-Adjusted operating profit: $65M (1.9% adjusted operating margin, barely positive)

-GMV: $127.9B, up 22% (Q4 GMV up 32%)

-118M active consumers (+28% YoY)

-966K merchants (+42% YoY)

-Market cap: ~$5.5B

2026 guidance: GMV of $155B, adjusted operating margin of 6.9%.

From a conventional value screen, Sezzle is a profitable compounder trading at 22x earnings with margins still expanding. Klarna is a money losing fintech.

The take rate gap is just as ugly. Sezzle monetizes 11.4% of every dollar of GMV. Klarna monetizes 2.7%. Sezzle pulls roughly 4x more revenue per dollar of volume flowing through its platform.

If you're running a value screen for "Revenue>30% + GAAP profitability + reasonable multiple" Sezzle is the answer and Klarna is discarded.

2. Why I'm buying Klarna the money loser anyway

Three things changed my mind. I'll go through them in order.

First: these companies are not competing in the same market.

Sezzle is a North American BNPL optimized for subscription conversion. They are already ~3M users.• and ~$1B quarterly GMV. Great business in a defined market.

Klarna is a global payments network in transformation to a neobank. 118M active users across 45 countries. ~$33B quarterly GMV. 1M+ merchants. It's 33x Sezzle's GMV and 8x its revenue. Comparing them on volume is like comparing Square's Cash App to a regional credit union because both process payments.

The right frame isn't "which BNPL is better run." It's "which BNPL becomes a payments network, and which stays a lending product." Those I think have wildly different terminal values.

Second: distribution economics in payments are winner-take-most, and Klarna owns distribution.

The Walmart partnership alone is the thesis. Klarna is the exclusive BNPL provider for Walmart starting H2 2025. Walmart does $420B in annual US sales. Even 1% BNPL attachment is $4B incremental GMV, that’s 12% of Klarna's entire current GMV just from one retailer.

Add the PSP integrations: Klarna is embedded inside Stripe, Worldpay, Adyen, JPMorgan Chase. Those four process trillions in annual volume. Klarna doesn't sign merchants one by one anymore. It gets distributed by the PSP themselves.

Half of the top 100 US online retailers already offer Klarna. In European markets where Klarna has been operating longer, it's 20-40% of checkout share. In the US it's still ~26% and growing. Sezzle's merchant base is ~600K, mostly SMBs. No exclusive partnership with a single top 10 US retailer. They consciously exited Europe, India, and Brazil to optimize for US profitability. That's a valid strategy. It's just not the strategy that builds a payments network.

Third: Klarna’s revenue composition is shifting in a way that changes the business.

This is the part I think the market is missing. Klarna's ARPU progression by product engagement:

Baseline BNPL user: $30 revenue per customer

Active app user (shopping, cashback, ~10% of customers): $90 per customer (from Q3 2025 Earnings Call)

Klarna Card holder (~3% of base, but growing fast): $130 per customer (from Q3 2025 Earnings Call)

The card user is 4.3x more monetizable than the baseline BNPL user. And card adoption just crossed 4.2M users globally, almost half of those 1.4M in the US (Q3 2025), built from zero.

On top of this, Klarna advertising revenue scaled from $13M in 2020 to $180M in 2024 (from S-1), roughly a 93% CAGR over four years. That's high-margin take rate on the consumer base they already have and no additional acquisition cost. Amazon already figured out that the shopping app becomes the ad network, once you have hundreds of millions of users in a shopping app with user purchase intent data, the ad business that sits on top of it grows faster than the underlying commerce, Amazon Ads went from a side business to $68.6 billion in 2025. Klarna is running the same playbook with 118M users already in the app.

If Klarna successfully shifts even 10% of its base to card usage and grows ad revenue at 30%, the revenue composition looks structurally different in 3 years. You're not buying a lender anymore. You're buying a global payments brand with an attached ad network.

3. I worry about Sezzle’s subscription penetration ceiling

Sezzle's entire growth engine right now is subscription conversion, higher marketing and advertising spend from $2.4M in Q3 2024 to $8.8M (+266% YoY) in Q3 2025. This works until it doesn't. Subscription penetration has a ceiling. Once you've converted the converters, growth decelerates. Sezzle's CEO acknowledged this on the Q2 2024 call “there might be a limiting function" on the subscriber-to-active-user ratio, and they don't know where it is.

Sezzle's other growth lever is taking more credit risk. They raised their target loss rate to 2.5-3% in 2025 (Q1 2025 Earnings Call) to prioritize growth. That's a healthy response for now, but it's also the leading indicator of a lender stretching for volume.

4. The valuation

Here's the part where value investors will want to argue with me.

Sezzle at ~$2.6B market cap, ~22x P/E, ~30% net margin. That’s cheap for the growth. But the realistic terminal state is a profitable US BNPL doing $1-1.5B revenue in 5 years with maybe 25-30% operating margins. At a generous 20x P/E that's a $5-9B market cap. You'd roughly double or triple your money if execution is clean.

Klarna at ~$5.5B market cap, negative P/E today. But the company did ~$3.5B in revenue last twelve months growing 24% with a 30%+ transaction margin. It has an actual banking license, 118M active users. If Klarna hits $7B revenue in 4 years at 10% net margins you get $700M in earnings. Even at a compressed 20x multiple that's $14B, or 2.5x today. At 30x (reasonable for a payments network, not a lender) it's $21B. 4x the current market cap.

The asymmetry runs the other way. Sezzle is priced for the business it is. If Klarna executes on banking conversion and fixes its transaction margin and scales advertising, it is priced at a fraction of several plausible terminal states.

Where I stand

Long Klarna, average cost ~$18. Not long Sezzle. I respect the business, I just don't think I can make 10x from here in 10 years.

The pattern I keep coming back to: I missed Nu at the early stage because it was unprofitable and I was optimizing for current margins. I'm not making the same mistake with Klarna.

Curious to hear others on the bear case on Klarna and Sezzle’s bull case.

Disclosure: Long KLAR, average cost ~$18. No position in SEZL. This is my personal thesis, not investment advice. This article is for informational purposes only and does not constitute investment advice or a recommendation to buy.