Klarna's Potential 2024 IPO: From Sequoia to Wall Street

In 2005, three students from the Stockholm School of Economics: Sebastian Siemiatkowski (also founder of Swedish investment company Flat Capital), Niklas Adalberth, and Victor Jacobsson, joined forces in the school’s annual entrepreneurship contest with a vision to simplify online shopping payments. This marked the inception of what we today, almost 20 years later, know as the fintech giant – Klarna. Since its inception, Klarna has catapulted into becoming a key player in the “buy now, pay later” (BNPL) space, and as the company signals for an upcoming IPO in 2024, the door opens up for investors to join in. Let’s explore the company in more detail.

• Rapid expansion: Klarna, originally named Kreditor, quickly grew from being a Swedish startup to a major player in the global BNPL market.

• Innovative business model: Klarna's "smooth shopping" philosophy offers flexible payment options, including direct payments, pay after delivery, and installment plans like Pay In 4, across its app and through partnerships with global retailers.

• IPO ambitions: With its recent financial turnaround, marking its first quarterly profit since 2019, Klarna is gearing up for a potential IPO in 2024, particularly eyeing the U.S. market.

• Valuation recovery: Despite a significant devaluation in 2022, Klarna's valuation rebounded to $7.85 billion in December 2023, following a profitable third quarter.

Initially named Kreditor, Klarna’s early years were marked by the founders’ relentless work on simplifying the complex maze of online transactions. By 2007, its 1000th vendor sign-up was celebrated, and growth was continuously rapid; by 2008, the company was venturing into Denmark, Finland, and Norway, and by 2009, it rebranded to Klarna. This period also saw the launch of innovative services like installment payment solutions and Klarna Checkout, and it kept on significantly gaining market share.

In 2013, Klarna acquired SOFORT, further solidifying its foothold in the European payment solutions market. As of market share the company had already by 2014 captured a remarkable 10% share in Northern Europe, and processed 30% of all online sales in Sweden.

Klarna’s mantra is “smooth shopping,” a philosophy that permeates every facet of its business model, from online to in-store experiences. This approach isn’t just a catchy tagline; it’s a comprehensive strategy aimed at redefining the shopping experiences by offering flexible payment options that cater to the diverse needs of consumers worldwide.

Whether through their app or in partnership with retailers across the globe, Klarna ensures that customers can pay their way, enjoying the liberty to choose from direct payments, pay after delivery options, or installment plans like the flagship Pay In 4 program. This flexibility is complemented by a seamless, one-click purchase experience, epitomizing convenience and efficiency.

Further reading: The Payments Value Chain: A Complex System

The global footprint of Klarna is significant, with 150 million active customers globally, including 34 million in the U.S., and over 500,000 merchants using its services. The company processes an impressive two million transactions per day, illustrating the scale and reach of its operations across 45 countries. With a workforce of 5,000 employees, Klarna’s continued growth is supported by notable investors such as Visa, Sequoia, Permira, Bestseller, and Atomico.

By recently turning a corner financially, reporting its first quarterly profit since 2019, Klarna’s journey towards an IPO is gaining momentum. The company reported a pre-tax profit of $12 million in their Q3 2023 earnings report, while increasing revenue and gross merchandise volume (GMV) by 30% and 22% year-over-year respectively.

Sebastian Siemiatkowski, Klarna’s Co-Founder and CEO, recently told Bloomberg that an IPO in the U.S., is “very likely,” although no official dates have been confirmed. The U.S. market, being Klarna’s largest in terms of revenue, is seen as a natural choice for the company’s stock market listing. This is partly because of this market’s familiarity with fintech and tech companies, potentially contributing to a more successful IPO.

The company’s valuation has been a point of debate, especially after a significant devaluation in 2022, but recent financial improvements and the profitable third quarter of 2023 have bolstered the sentiment around Klarna’s prospects. In December 2023, Swedish investment company Creades increased its stake in Klarna to $11.3 million at a $7.85 billion valuation.

The upcoming IPO represents a pivotal moment for Klarna, as it seeks to capitalize on its strong market position and recent turn to profitability. While the exact timing and venue of the IPO remains uncertain, Klarna’s strategic focus on the U.S. market underscores its ambition to further solidify its standing as a leading player in the global fintech landscape.