Klarna is one of many companies in sectors such as cryptocurrency and consumer goods that are aiming for a public listing in New York this week. They had that goal as they saw that the stock market was recovering and many companies were making successful debuts, which eased tariff concerns and reignited investor interest in IPOs.
Klarna, a buy-now, pay-later lender, announced on Tuesday that it has raised $1.37 billion in its initial public offering (IPO) in the US, setting the stage for another high-growth fintech company to make its market entry through a public listing.
The Swedish company, backed by Sequoia Capital, along with some of its existing investors, offered 34.3 million shares at $40 each, which was above its targeted range of $35 to $37 per share.
Earlier that day, based on two sources, its IPO value reached $15.11 billion, which is a significant decline from the over $45 billion valuation it achieved in 2021 after becoming a leader in the Buy Now, Pay Later (BNPL) sector. Its valuation dropped to $6.7 billion in 2022 due to increasing interest rates and inflation. The initial public offering was oversubscribed by 25 times, according to sources familiar with the matter.
Klarna is one of many companies in sectors such as cryptocurrency and consumer goods that are aiming for a public listing in New York this week. They had that goal as they saw that the stock market was recovering and many companies were making successful debuts, which eased tariff concerns and reignited investor interest in IPOs.
The company has been thinking about making a New York listing for several years, but paused its plans in April as US tariffs have made a huge impact on its trading partners. It created volatility in global markets. Established in 2005, Klarna was profitable before it expanded into the US in 2019, just as people started shifting towards online shopping, which was triggered by the COVID-19 pandemic.
Although its user base and gross merchandise total continue to grow at double-digit rates, making a profit on its income sheets still remains a challenge. Losses increased to $52 million for the quarter ending June 30, compared to $7 million in the same period the previous year, while income reached $823 million from $682 million.
Although the market is once again opening its gates for fintech offerings, companies will face rapid scrutiny as they must balance growth and profitability in a more challenging macroeconomic environment, according to Rudy Yang, a senior analyst at PitchBook.
Chime saw its shares increase by 59% during its Nasdaq debut in June; however, they are currently trading below the initial offering price. Analysts suggest that Klarna’s strong brand presence may help it maintain its position among fintechs. The competitive and fast-changing industry requires a brand to maintain a reputation, which Klarna excels at. Maintaining a brand image is as crucial as the business model itself, claims Kat Liu, Vice President at the IPO research firm IPOX.
American consumer spending continues to be resilient despite inflation increasing prices, cracks in the labor market, and slow income growth. Alternative payment apps, such as Klarna, which help consumers reduce their financial burden by allowing them to divide purchases into smaller, interest-free installments over weeks or months, have seen a lot of demand recently.
For the year ending June 30, Klarna got 75% of its revenue from transaction and service fees, most of which came from merchants within its network, marking the lowest share of total revenue for that timeframe since 2022. During this period, the interest income increased to 25%.
Since Klarna’s BNPL model relies on both transaction volume and repayment rates, a decrease in spending not only lowers the merchant fees but also increases the risk of credit losses, Liu noted. Goldman Sachs, JP Morgan, and Morgan Stanley serve as the joint book-running managers. Klarna will begin trading on the New York Stock Exchange under the symbol “KLAR” on Wednesday.
