As Klarna prepares for the highly anticipated initial public offering, investors will scrutinise the bids of Fintech’s company to rebrand as a comprehensive digital bank. Swedish payment group has become synonymous with Buy Now. Later, the Pay (BNPL) model was used to allow people to split into installments without purchases. However, in recent months, Klarna has tried to convince the market that it is not a one-time trick pony in the market, and that it should be considered a digital retail bank rather than a simple BNPL company. “We want Americans to start relating to us with the PayPal wallet-type experience we have, not just buy now, but pay later,” Klarna CEO Sebastian Siemiatkowski told CNBC’s “The Exchange” in May. “We are basically a lot of neobanks, but people still bond us strongly, but we’ll pay later.” Can we convince investors? Last week, Klarna announced that it expects the much-anticipated shares in the IPO to be priced between $35 and $37 each, and will be valued at up to $14 billion, according to CNBC calculations. This is down from the long-awaited $45.6 billion Krana in the 2021 funding round led by SoftBank. However, the following year, the company was valuation improvements of $6.7 billion, which was shut down in the so-called “downround.” A key question for the company in the future is whether investors can be sure by their “neobank” pivot. In international markets such as the US and the UK, Klarna is mostly known for its short-term 0% interest funding products. However, in the European Union, Klarna has held Swedish financial regulators and banking licenses since 2017, offering personal bank accounts in Germany. Also, recently, we have begun to deploy more banking products, including deposit billing accounts and debit cards, across the US and Europe. “IPOs will undoubtedly be an indicator of how investors can broadly buy Klarna’s shift in business model,” Samuel Kerr, global head of stock capital markets at Mergermarket, told CNBC in an email. Recent floats such as Figma, Circle and Bullish show that appetites to key technology lists have finally returned after the largely stifled IPO market over the past three years. “As we saw in Figma’s IPO, the publication of the S-1 is the first time many investors have actually looked into the company’s figures in detail, which could be positive as we saw with the surge in demand for Figma,” Kerr said. “But it could also work as a negative thing, and the loss outlined in Klarna’s applicants will put its finances under real scrutiny given that its scrutiny of its evolution and growth and Klarna’s answer could become the decision maker of the IPO’s success,” he added. Klarna revealed a net loss of $53 million in the second quarter, almost tripling the $18 million lost during the same period of the year. Still, revenues rose 20% year-on-year to $823 million. But Joakim Dal, a longtime partner at Klarna Investor GP Bullhound, says the company should be valued more, like a payments business that challenges the control of companies such as Visa and Mastercard. “We think this is a business that ultimately exceeds $10 billion,” Dal told CNBC. “In the long term, we see this company running on 20% revenue before the tax margin.” “If we just apply such metrics with revenues of over $10 billion and that kind of long-term margin, we can definitely see that by 2030 this company will trade over $50 billion,” he added. How to Rate Klarna The hardest way to evaluate Klarna is that 2025 is a very different time compared to the heyday of low-cost fintech services. Investors are undoubtedly wary of products offering products that offer short-term plans with 0% interest in environments where interest rates remain high compared to four or five years ago. Nevertheless, Klarna promotes the model as an attractive model for both consumers and retailers. The company acquires much of its income from fees it charges merchants to provide payment methods, and charges interest on long-term funding products and late fees. Klarna has also spoken about the expansion into advertising in recent years, but this remains a much smaller business compared to other revenue streams. The company generated annual revenue of $2.81 billion last year, and is on a trajectory this year. One way to get a sense of how to assess Klarna is to compare it to a publicly taken peer. The assertion was released on the Nasdaq in 2021 and, like Kraruna, was abused as it exacerbated macroeconomic conditions that stemmed from the 2022 Russian and Crane War defeated high-tech stocks. Today, Affirm has a market capitalization of over $29 billion, far surpassing Klarna. According to Simon Taylor, advisor at Fintech Firm Sardine.ai, Swedish Fintech has similar revenues and is likely priced compared to positives. Unlike Klarna, however, Affirm is profitable quarterly, posting net profit of $69.2 million or 20 cents per share in the second quarter. “They are case studies in shattering the economics of better units as they scale up,” Taylor said, referring to the affirmation. “Klarna isn’t that late,” he pointed out, adding, “Their bankers probably want this banker to pop by twice as much on IPO day.” That coincides with how other big-hit fintech lists ran on the first day of trading. Circle spiked 168% on the day of the IPO, but bullishness surged 83%. Chime is comparable to Klarna as rival Neobank, closing 37% higher on IPO day. However, Kerr warned that it is not wise to base his expectations of Klarna’s IPO performance on other fintech lists that have occurred this year. “I think it’s very difficult to draw too many similarities between the broader fintech lists,” he said. “I don’t think the market sees this as a uniform industry and sees more about the specificity of each business trying to do an IPO.” In the case of the circle, investors were evaluating the company as a beneficiary of so-called stubcoin and valuing the move to digitize the US dollar, he said. “There’s clearly been a desire from investors to buy new ‘megatrends’ in AI and cryptocurrency, but outside of this investor’s demand, it was extremely important for each case,” Kerr said.
