Buy now pay later (BNPL) powerhouse Klarna has announced that it’s planning an Initial Public Offering (IPO). This means that it will soon be a publicly-traded company that you can buy shares in.
Looking to get involved in the Klarna IPO? Here’s everything you need to know.
Who is Klarna?
Klarna is a Swedish BNPL firm that allows shoppers to spread the cost of purchases over multiple transactions. Founded in 2005, the company has around 85 million active consumers today.
To date, Klarna has attracted investment from some big-name investors including Sequoia Capital, SoftBank, Silver Lake, and the Commonwealth Bank of Australia. Currently, it is one of Europe’s most valuable private technology businesses.
The IPO details
Right now, we don’t have many details on the Klarna IPO.
However, one thing we know is that the company is planning to list in the US. We know this because the group has filed IPO documents with the US Securities and Exchange Commission (SEC).
In terms of the timing of the IPO, Klarna has said that it’s expected to take place after the SEC completes its review process, subject to market and other conditions. So, we are probably looking at an IPO in the first half of 2025.
As for the valuation, Klarna is looking for a figure of around $15-20 billion. That is quite a bit higher than its last valuation of $6.7 billion, which was obtained in 2022.
How to buy shares in the Klarna IPO
At this stage, we don’t know if retail investors will be able to participate in the Klarna IPO. Often when companies IPO in the US, shares go to institutional investors.
If the IPO is open to retail investors, it’s unlikely that UK investors will be able to participate in it. Those in the UK will probably have to wait until the shares are listed to buy them.
But, to prepare yourself for investing in new companies to market, you can read our guide to the best accounts for investing in IPOs.
Is Klarna worth investing in?
This is hard to determine at the moment because we don’t have clarity on the IPO valuation. But we can do some back-of-the-envelope calculations.
In 2023, Klarna’s revenue was SEK 23.5 billion. So, let’s say that revenue in 2024 is 20% higher at SEK 28.2 billion. That equates to roughly USD $2.6 billion.
Now, let’s say the company gets a $20 billion valuation in the IPO. That would put the trailing price-to-sales ratio at 7.7. That’s quite a high valuation. However, rival Affirm currently has a trailing price-to-sales ratio of 8.3. So, on a relative basis, the valuation doesn’t look too bad.
It should be noted, however, that Klarna has a poor track record when it comes to profitability. According to City AM, the company has not turned an annual profit since 2018. This lack of profitability adds risk. Generally speaking, the stocks of companies with no or minimal profits are highly volatile.
Other risks to consider here include competition from rivals and attention from regulators. In recent years, regulators across the world have been looking closely at BNPL firms.
How have other BNPL stocks performed?
History shows that BNPL stocks tend to be very volatile.
Affirm, for example, saw its share price crash from $160 to $20 between 2021 and 2022. While it has recovered a little recently, it is still well below its 2021 highs today.
It’s a similar story with Australian BNPL stock Zip. It tanked between 2021 and 2023 and remains well below its highs today.
Given the historical performance of BNPL stocks, it’s probably smart to approach Klarna shares with caution.
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
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