Klarna Shares Surge Following US Debut

Klarna, the Swedish fintech giant renowned for its “buy now, pay later” (BNPL) services, made a splash on the New York Stock Exchange (NYSE) Wednesday, with shares surging as much as 30% above their IPO price. The stock opened at $52, a significant jump after the company priced its shares at $40 Tuesday, surpassing initial expectations and raising $1.37 billion for the company and its existing shareholders. This debut values Klarna at approximately $15 billion, a figure closely watched by analysts assessing the evolving BNPL landscape.

Klarna’s successful launch adds to the momentum of several high-profile tech IPOs this year, signaling renewed investor appetite for new market entrants. The strong performances of companies like Circle, a stablecoin issuer, and Figma, the collaborative design platform, in their respective IPOs have further fueled market optimism. All eyes are now on crypto exchange Gemini, which is slated to go public later this week, to gauge sustained investor confidence in the tech sector.

“To me, it really just is a milestone,” Klarna’s co-founder and CEO Sebastian Siemiatkowski commented in an interview. He likened the IPO to a wedding, noting the extensive preparation and celebration involved, emphasizing that, ultimately, “marriage goes on,” signifying the ongoing journey and challenges the company faces.

While the initial surge propelled the stock to around $47 by midday, giving the company a valuation of roughly $18 billion, analysts are keen to see how Klarna navigates the public markets. A key aspect of investor scrutiny will be Klarna’s strategic pivot towards banking services, particularly its foray into the U.S. market with debit cards and personal deposit accounts. This expansion aims to diversify Klarna’s revenue streams and deepen its engagement with consumers.

Siemiatkowski revealed that Klarna has already signed 700,000 card customers in the U.S., with a waiting list of 5 million seeking access to the product. He differentiated Klarna’s card offering from that of rival Affirm, which boasts 2 million users since its 2021 launch. Siemiatkowski suggested Klarna is attracting a slightly different demographic, leaning towards users who may not necessarily seek financing with interest on higher-value purchases as the primary use case for their card.

Besides Affirm, Klarna also battles for market share with competitors like Afterpay, which was acquired by Block (formerly Square) for $29 billion in 2021, illustrating the intense competition within the BNPL sector. The BNPL sector is fiercely competitive, with new entrants and established players constantly innovating to capture market share. This rivalry necessitates continuous technological advancements and strategic partnerships to maintain a competitive edge and cater to evolving consumer demands.

However, Klarna is not without its challenges. Regulatory scrutiny is intensifying, particularly in the U.K., where the government is proposing new regulations to bring BNPL loans under formal oversight. European regulators are increasingly focused on affordability concerns surrounding the BNPL market, highlighting the need for responsible lending practices and robust consumer protection mechanisms.

Klarna’s IPO is set to deliver substantial returns for its long-term backers. Existing shareholders are offering the majority of the shares—28.8 million—in the public market. At the IPO price of $40, this translates to over $1.2 billion. Klarna itself raised $222 million from the offering.

Sequoia, an early investor in 2010 with a total investment of $500 million, sold 2 million of its 79 million shares in the IPO. Based on the offer price, this translates to an estimated overall return of approximately $2.65 billion.

Andrew Reed, a partner at Sequoia, recalled being a college student when Sequoia first invested in the “alternative payments company in Stockholm.” He emphasized the company’s initial focus on expanding within Europe.

“Being here in New York 15 years later with over 100 million consumers and over $100 billion of GMV [gross merchandise value] and close to a million merchants, it is staggering what one year after another of execution and growth and Sebastian’s long-term vision can do,” Reed remarked, underscoring the impact of consistent execution and visionary leadership.

Conversely, not all investors have seen such favorable outcomes. SoftBank led a funding round in Klarna in 2021 at a valuation of $46 billion. The subsequent decline in valuation has significantly impacted the value of SoftBank’s stake, serving as a reminder of the inherent risks associated with late-stage investments in rapidly evolving markets. The fluctuating fortunes of investors like SoftBank reveal the volatile nature of the fintech landscape, where market trends and regulatory shifts can have a substantial impact on investment returns.