Should you buy into the Klarna IPO? The impending IPO of Klarna has generated much buzz as the Swedish financial services company has over 90 million active users across 19 countries. The buy now, pay later (BNPL) model offered by the company lets consumers spread out their payments over multiple transactions.
The company took the financial world by storm with its BNPL model and manages over 2,000,000 transactions every day. Its smooth one-click purchase system has allowed it to partner with brands like H&M, Adidas, Sephora, IKEA, and Anthropologie. The Klarna IPO is expected to happen this year, although no timeline has been provided by officials so far. Out of the many upcoming IPOs scheduled for this year, Klarna has ignited the interest of investors in fintech.
Klarna IPO and Growth
According to Klarna’s shopping insights, 77% of consumers globally say retailers should continually invest in new tech to meet their evolving expectations, and 51% of consumers noted their most-wanted innovations for online shopping are frictionless payments.
In this case, Klarna’s valuation is set to go up as the future of fintech changes. In June 2021, Klarna was valued at $45.6 billion after a fundraising round led by SoftBank helped it raise over $639 million.
The company appears to be preparing for the IPO of Klarna by revamping its offerings and providing better user experiences. On October 19, Klarna announced that it is launching a new creators app, which will allow retailers and influencers to work together on campaigns and track earnings, performance, and sales. The company also rolled out new updates and features for the US.
Last year, CEO Sebastian Siemiatkowski told Reuters that the company is investing heavily in the US and would like to make a public offering in the country.
Why you should avoid the Klarna IPO
Although Klarna is one of the leaders in the BNPL segment, the company is still trying to spread its wings in the online payments industry. Biggies like Google, Apple, PayPal, and Strife have been in the market longer and have a wider reach.
In the BNPL segment, Klarna faces stiff competition from Sezzle, Affirm, and Afterpay. PayPal too has entered the race with its own BNPL model that is similar to Klarna’s four installment model. Furthermore, Apple is already working on its own BNPL model with Goldman Sachs. Amazon Monthly Payments, the BNPL model from the tech giant, lets customers spread out their payments over a span of five payments, following an initial payment.
The Klarna IPO might also be affected by the fact that the company has reported losses in the last two years, after making profits in the initial 14 years. As Klarna has focused on expanding its services, it has led to a 50% increase in losses. Klarna’s valuation was also slashed by nearly by 85% in a new financing round in July, and went from roughly $46 billion to a $6.7 billion valuation. Siemiatkowski, meanwhile, remains optimistic that the company will soon profit from its ventures.
While the company’s expansion plans signal an upcoming IPO, there has been no news on whether the company has started preparing for one or on a possible Klarna IPO date. Klarna seems to be focused on making the US its biggest market, where it faces multiple competitors.
Fintech seems to be a hot topic in 2022. According to Bloomberg, financial regulators and credit rating companies worry that Klarna’s business model might encourage reckless borrowing. As the company targets millennials and Gen Z-ers, people might abuse Klarna’s services and laden themselves with debt. This could eventually be bad news for investors who could see Klarna valuations drop. Also, Klarna has not turned in a profit since 2019 and the current economic climate does not bode well for public offerings.
Investors might also be interested in exploring other fintech companies like Monzo, Stripe, and Revolut that seem to be planning their own public offerings. If fintech looks tepid then there’s always Instacart IPO or Impossible Food’s IPO to bet your money on.
