Investors to scrutinize fintech’s digital bank pivot
As Klarna gears up for its highly-anticipated initial public offering, investors will be closely scrutinizing the fintech firm’s bid to rebrand itself as an all-encompassing digital bank. The Swedish payments group has become synonymous with the buy now, pay later (BNPL) model, which allows people to split purchases into interest-free installments. However, in recent months Klarna has attempted to convince the market that it’s not a one-trick pony, and that it should be considered as more of a digital retail bank rather than a simple BNPL firm. “We want Americans to start to associate us with not only buy now, pay later, but [with] the PayPal wallet type of experience that we have,” Klarna CEO Sebastian Siemiatkowski told CNBC’s ” The Exchange ” in May. “We are basically a neobank to a large degree, but people associate us still strongly with buy now, pay later.” Can it convince investors? Last week, Klarna announced it expects shares in its long-awaited IPO to be priced between $35 and $37 each, which would value it at up to $14 billion, according to CNBC calculations. That’s down from the eye-watering $45.6 billion Klarna was valued at in a 2021 funding round led by SoftBank . However, it’s still an improvement on the $6.7 billion valuation the company slumped to in a so-called “down round” the following year. A key question for the company going forward will be whether investors can be convinced by its “neobank” pivot. In international markets like the U.S. and U.K., Klarna is still primarily known for its short-term, 0% interest financing products. However, in the European Union, Klarna has held a banking license with Sweden’s financial regulator since 2017 and offers personal bank accounts in Germany . It has also recently begun rolling out more banking products , such as deposit-taking accounts and debit cards, across the U.S. and Europe . “The IPO will definitely be an indicator of how broadly investors buy the shift in Klarna’s business model,” Samuel Kerr, global head of equity capital markets at Mergermarket, told CNBC via email. Recent floats from the likes of Figma , Circle and Bullish have demonstrated appetite for major tech listings is finally returning after a largely muted IPO market over the last three years. “As we saw with Figma’s IPO the publication of an S-1 can be the first time many investors get to go through a company’s numbers in real detail. This can be a positive as we saw in the surge of demand for Figma,” Kerr said. “It can also work as a negative however and given the losses outlined in Klarna’s filings investors will be putting its financials under real scrutiny. That scrutiny and Klarna’s answers on its evolution and growth could be the determiner of IPO success,” he added. Klarna disclosed a net loss of $53 million in the second quarter, nearly tripling from the $18 million it lost in the same period a year go. Still, revenues climbed 20% year-over-year to $823 million. However, Joakim Dal, a partner at long-time Klarna investor GP Bullhound, says the company should be valued more like a payments business challenging the dominance of firms such as Visa and Mastercard . “We see this as a business that eventually will turn over $10 billion dollars,” Dal told CNBC. “In the long run, I see this company running on 20% earnings before tax margins.” “If you just apply those sort of metrics with a $10 billion-plus revenue and those type of long-term margins, I think you could definitely see this company trading about $50 billion” or more by 2030, he added. How to value Klarna The difficulty with valuing Klarna is that 2025 is a very different time compared with the heyday of low-fee fintech services. Investors are arguably more wary of products offering short-term plans with 0% interest in an environment where interest rates remain elevated compared to where they were four or five years ago. Nevertheless, Klarna touts its model as one that is attractive both for consumers and retailers. The company makes much of its income from fees it charges merchants for offering its payment method, as well interest on longer-term financing products and late fees. Klarna has also talked up an expansion into advertising in recent years, though this remains a much smaller business compared with other revenue streams. The company made $2.81 billion of annual revenue last year, and is on track to top that amount this year. One way of getting a sense for how Klarna should be valued is comparing it to its publicly-traded peers. Affirm went public on the Nasdaq in 2021 and — like Klarna — took a battering in 2022 as worsening macroeconomic conditions resulting from the Russia-Ukraine war hammered tech stocks. Today, Affirm has a market capitalization of over $29 billion, putting it far ahead of Klarna. The Swedish fintech is likely being priced in comparison to Affirm because it has similar revenues, according to Simon Taylor, an advisor at fintech firm Sardine.ai. Unlike Klarna, though, Affirm is profitable on a quarterly basis, posting net income of $69.2 million or 20 cents a share in the second quarter. “They’re a case study in grinding out better unit economics as they scale,” Taylor said, referring to Affirm. “Klarna isn’t that far behind,” he noted, adding, “I’d wager their bankers are probably hoping this pops by 2x on IPO day.” That would match up to how some other blockbuster fintech listings have performed on the first day of trading. Circle spiked 168% on the day of its IPO, while Bullish surged 83%. Chime , which would be more comparable to Klarna as a rival neobank, closed 37% higher on IPO day. However, Kerr warned it would be unwise to base IPO performance expectations for Klarna on other fintech listings that have happened this year. “I think it’s very hard to draw too much of a parallel between broader fintech listings,” he said. “I think the market is starting to look less at this as a homogonous industry and more about the idiosyncratic qualities of each business attempting to IPO.” In Circle’s case, he said, investors were appraising the company as a beneficiary of so-called stablecoins and a movement to digitize the U.S. dollar. “There is clearly a desire from investors to buy into the new ‘megatrends’ of AI and cryptocurrency, but outside of this investor demand for public market debutants has been very case-by-case,” Kerr said.