Klarna, the Swedish fintech company renowned for its buy now, pay later services, has successfully launched its initial public offering (IPO) on Wall Street, raising $1.37 billion. Shares opened at $52 per share, soaring 30% from their IPO price of $40. At its peak, this surge created a $15 billion valuation for the company. This substantial increase is a strong testimony to investors’ demand for Klarna’s ground-breaking payment solutions and its rapidly growing international presence.
Founded in 2005, Klarna burst onto the scene. Having launched in the UK in 2014 and the US in 2019, it’s seen some remarkable growth. With over 93 million active users in 26 countries, the company has quickly surged to a leading position in the global fintech landscape. In Sweden, more than 80% of all adults used Klarna last year, illustrating the wild market penetration Klarna has.
That’s certainly understandable — Klarna’s revenue was about $2.8 billion last year, a 24% year-on-year spike. This growth is indicative of a high consumer demand for these services. Consumers love the flexibility of paying for their purchases in bite-sized chunks without interest. In its most recent quarter, Klarna lost $52 million for the three months ending in June. This is a dramatic increase from last year’s $7 million loss during the same period. Sebastian Siemiatkowski, the company’s chief executive, has no doubt as to why. He takes aim at increasing operating expenses related to their aggressive expansion into the US market.
Joachim Dal, an analyst with insights into Klarna’s business model, emphasized the company’s positioning within the fintech landscape.
“In our view it’s more of a payment company than a lender.” – Joachim Dal
This view is important because it emphasizes Klarna’s business as transactional based as opposed to traditional lending. The company’s main source of top-line income comes from charging merchants commission fees on transactions made with its pay-later service.
While Klarna is booming, their underlying issue is profitability or lack thereof. This is particularly the case in the US market, where processing costs are much more exorbitant. The rapid expansion raises questions about sustainable growth and long-term financial health. Despite all of that, analysts have high hopes for Klarna’s potential.
Mr. Dal noted the benefits enjoyed by technology firms that went public on Wall Street.
“For any company in the technology sector that is looking to go public, there is only one market and that is the market on Wall Street.” – Mr Dal
He continued to make the case that this market is essential for fintech companies like Klarna.
“That’s where you have the most liquidity, most of the coverage of equity analysts that’s where you have most of the comparable companies listed and frankly you get the highest valuations as well.” – Mr Dal