Klarna's going public, and I'm excited as hell
And how Klarna's valuation started high, went low, and went back up again.
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👏 Klarna files privately to go public 👏
Clap your hands! We have an interesting tech IPO coming to the United States: Buy Now, Pay Later giant Klarna. Here’s the company’s announcement:
Klarna Group Plc today confidentially submitted a draft Registration Statement on Form F-1 to the Securities and Exchange Commission (the “SEC”) relating to the proposed initial public offering of its ordinary shares. The number of shares to be offered and the price range for the proposed offering have not yet been determined. The initial public offering is expected to take place after the SEC completes its review process, subject to market and other conditions.
Naturally, we don’t have new numbers yet as Klarna’s F-1 is nascent and not yet public. But, we do know a lot about the company, which means we can come up with a viewpoint on its health, and worth.
Pulling from a series of annual reports from the consumer fintech unicorn, here’s what we know:
GMV: $53 billion, +46%
Revenue (‘net operating income’): $1.1 billion, +40%
Net income (net result): -$141.8 million (converted from SEK, provided ratio)
GMV: $80 billion, +42%
Revenue: $1.6 billion, +38%
Net income: -$828.3 million (converted from SEK, provided ratio)
GMV: SEK837 billion, +22%
In dollar terms, given a decline in the value of the Swedish currency in 2022, USD-denominated GMV growth at Klarna was slow, at a calculated $82.7 billion.
Revenue: SEK16.7 billion, +19%
In dollar terms, given a decline in the value of the Swedish currency in 2022, USD-denominated net operating income (revenue) growth at Klarna was slow, at a calculated $1.65 billion.
Net income: -SEK10.4 billion, +47%
GMV: SEK981 billion, +17%
In dollar terms, given another decline in the value of the Swedish currency, GMV expanded to $92.4 billion.
Revenue: SEK23.5 billion, +22%
In dollar terms, given another decline in the value of the Swedish currency, revenue expanded to $2.2 billion
Net income: -SEK2.5B
In dollar terms, given another decline in the value of the Swedish currency, net losses fell to $239 million
GMV: SEK523 billion, +16% compared to H1 2023
Revenue: SEK13.3 billion, +27% compared to H1 2023
Net income: Not disclosed, but on an adjusted operating basis Klarna turned in a modest profit.
There’s a lot to chew on in there. But, to summarize briefly: Klarna grew very quickly in 2020 and nearly as fast in 2021. However, growth declines helped generate a massive increase in Klarna’s losses in 2022. Those 2022-era issues led to Klarna’s valuation getting slashed from $46 billion to a little less than $7 billion.
But, then, Klarna’s 2023 saw it eke out faster revenue growth at a far smaller deficit. When digging into Klarna’s third-quarter results that year, I wrote for TechCrunch that “Klarna’s financial glow-up is my favorite story in tech right now.” What happened? Here’s my short summary from that period:
Better GMV, a higher take rate and solid revenue growth combined with lower costs and smaller credit losses meant that Klarna’s “cost to income ratio” narrowed to –83% in Q3 2023 from –116% in Q3 2022.
Klarna continued to post revenue growth ahead of GMV in the first-half of 2024, and managed to turn in a small, adjusted profit. The good news continued this year, in other words.
So, why now?
Klarna is listing now thanks in part to its improving financial results. And the fact that since Trump won the last election, fintech stocks have rallied.
Affirm, for example, closed $43.69 per share on November 4th, before the votes were counted. Today, it’s worth $57.59 per share. PayPal was worth $78.31 per share on November 4th, and $86.40 per share today. And Sezzle, yet another BNPL provider, saw its share price rise from $199.82 on the 4th to $367.95 per share this morning.
Those gains are predicated on investors expecting less strenuous regulation of their lending activities. Looser lending rules mean that folks in the BNPL business can probably make more money. Investors certainly think so.
But what matters for our needs is that the value of BNPL-focused, and participating companies has expanded in recent trading sessions. That means Klarna can get more credit (valuation) for the same work (financial results). Who doesn’t want that?
Klarna’s debut is an indication that there is a stock market level at which unicorns can go public. The bad news is that it took stocks reaching incredibly expensive levels to do so.
In other news: Swiggy trades higher
After seeing its grey-market premium dip, some market watchers were concerned that delivery giant Swiggy would struggle once it began to publicly trade. No such bad luck. Shares of Swiggy rose 16.92% in their first day’s trading, a very solid result.
— Alex
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