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The Klarna IPO: how much longer will we have to wait?

Klarna IPO

Amid renewed speculation about Klarna’s valuation and rumours that an IPO is on the horizon, SV Ventures CEO Erik Arnetz highlights the grey market signals, macro trends, and other developments shaping the Swedish fintech’s future.

It’s 2024, and the Swedish fintech world is once again buzzing about Klarna. The company recently reported its first quarterly profits in four years - posting a pre-tax profit of 130m SEK thanks to lower credit losses and a 30 percent increase in revenue, largely built on the back of the company’s continued US expansion.

The result marks a stunning turnaround from the 3.6bn SEK Q3 loss Klarna reported just over a year ago. CEO Sebastian Siemiatkowski has also been touting Klarna’s move to integrate AI more heavily into operations. Suddenly, investors are wondering anew whether this return to profitability and push into AI might also help Klarna recover its valuation.

Klarna’s return to profit, coupled with equity markets’ strong upward swing since the end of October, has also prompted renewed speculation about when Klarna might hold a much-anticipated IPO. Considering Klarna has become something of a bellwether for the pre-IPO market in Sweden and abroad, it’s no surprise that so many people have a keen interest in what happens.  

Klarna’s valuation: what to consider?

As an advisor to many of Sweden’s leading unlisted tech firms, we’ve seen a notable uptick in Klarna-related inquiries from investors lately: How should we think about valuing Klarna? When will it go public?

In some respects, these questions are nothing new; we’ve heard them ever since we brokered our first trade in Klarna shares in 2020. Many were asking us the same thing during a flurry of Klarna up rounds in 2021. And we found ourselves fielding calls from investors and media outlets around the world looking for insights ahead of Klarna’s 2022 down round.

When looking at these questions today amid growing interest over a Klarna IPO, we see a marked improvement in macro signals compared to the start of the year. The US-based, tech-heavy NASDAQ is up more than 40 percent, driven in large part by surging share prices of the Magnificent Seven as the market looks to bet on the broader AI trend. The Fed also signalled recently it plans to cut interest rates in 2024 and it looks like inflation (at least in the US) is cooling, creating a much more favourable funding environment than a year ago.

The continued rise of BNPL

Furthermore, the US consumer has remained strong, with spending fuelled in part by increased use of BNPL solutions like Klarna and its US competitor Affirm. E-commerce platform Shopify is also pushing its merchants to integrate BNPL solutions, another sign that BNPL is gaining market share – creating an overall favourable macro backdrop for Klarna’s potential valuation.

The trajectory of Affirm’s share price, which soared more than 400 percent in 2023, supports this conclusion. It’s no wonder then, that investors are looking more closely at Klarna.

Recent figures released by current Klarna owner Creades indicate it values its holdings in Klarna at 118m SEK or roughly 2,700 SEK/share - an 18 percent markup from the previous month. Another owner was recently looking to offload Klarna shares at 3,300 SEK/share, more than 40 percent higher than the 2022 down round share price of circa 2,300 SEK/share. And at SV Ventures, we know of multiple trades done at 3,200 SEK/share in the weeks leading up to Christmas.

Global ambitions in digital financial management

Unlike Affirm, Klarna’s ambitions go well beyond being just a BNPL solution; it’s aiming to be a digital financial management platform that generates marketing revenue from merchants as well as an AI-powered digital shopping assistant for consumers around the globe. Furthermore, Klarna’s main source of revenue today isn’t BNPL services, but rather payment processing.

Thus, Klarna has a much more diversified revenue stream compared to Affirm. It also has a global customer base while Affirm only serves shoppers in the US and Canada. And Klarna’s gross merchandise value is many times larger than Affirm’s, even though the two firms have similar revenue on account of different fee models.

Yet Affirm’s market cap of roughly $13bn is still well above Klarna’s estimated value of around $9bn. Why?

Increasing demand for Klarna shares

It may simply be that very few investors have access to forecasts that reveal what sort of business Klarna wants to become in three to five years – in contrast to publicly traded companies like Affirm which must share this sort of outlook with the market. It’s one thing to see EBIT for the previous quarter; it’s another thing to see whether or not Klarna is set to become one of a handful of global payments platforms or simply a “capital-light fintech” that operates similar to a traditional bank.

There just isn’t a lot of information coming out from Klarna. Even large shareholders we speak with don’t really know that much. Perhaps part of Klarna’s strategy is to keep people guessing and add to the mystery.

Another interesting data point is an increasing number of investors, both existing and prospective, reaching out to us with an interest in buying shares in Klarna. These investors are looking at buying $10m, $20m, even up to $50m at price points well above Klarna’s last fundraising round.

A Klarna IPO on the horizon?

So, macro conditions are ripening; BNPL is gaining wider acceptance; Klarna’s valuation is rebounding, and investor interest is heating up. Siemiatkowski has also become increasingly talkative in recent months, talking to the press, and posting more frequently on X.

These are all signs that would seem to indicate a Klarna IPO is on the horizon. And even if the valuation is well-below Klarna’s all-time high, some large owners are still deep in the money – and may be particularly interested in selling to satisfy distribution demands from limited partners amidst an overall weaker market for IPOs.

Remember, Sequoia – which was an early investor in Klarna and owns about 20 percent – still made a lot of money when grocery delivery company Instacart went public at a valuation 75 percent below what the firm paid for their last investment. A partial Klarna recovery may be enough for Sequoia and other early owners to get behind an IPO below Klarna’s peak valuation of 2021.

So, how much longer can investors expect to wait before a Klarna IPO? Based on our previous experience, companies that generate as much interest as we’re currently seeing in Klarna generally go through a capital markets event within six months.

Considering as well Klarna’s journey over the last twelve months and increasingly favourable market conditions, we believe that Klarna will carry out a proper up round or an IPO during the first half of 2024.

Erik Arnetz

CEO & Founding Partner

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