Online payments provider and buy-now-pay-later (BNPL) lender Klarna has become “the latest... casualty” in the initial public offering (IPO) market following the announcement on tariffs, say Ben Dummett and Joe Wallace in The Wall Street Journal. It has decided to postpone its flotation. It was due to launch a marketing campaign for the listing on the New York Stock Exchange, where it has been targeting a valuation of $15 billion – over double the $6.7 billion it was worth in 2022. Rival Affirm’s market valuation dropped 15% on Friday 4 April. It has almost halved to $12 billion this year.
The dismal performance of Affirm and its other rivals may have played a big role in Klarna having “second thoughts” about entering the stock market, says Pymnts. However, there are also some “larger concerns”. The trade war unleashed by Donald Trump could cause consumers to “throttle” overall spending. This would be particularly bad news for Klarna, which makes its money from short-term loans to consumers. What’s more, during bear markets, investors tend to focus on companies with a “prolonged history of operating profits”, while Klarna admitted in recent pre-flotation filings that operating losses had instead “been widening at the company”.
Is Klarna a prudent lender?
The evidence suggests that Klarna’s ability to make loans wisely isn’t as great as it might seem, adds Stephen Gandel for Breakingviews. While its headline loan-loss rate is only 0.47%, far lower than the 5.2% banks have been forced to write off on credit-card loans, it has set aside $495 million to cover potential unpaid debt from consumers. Using an alternative measure, Klarna’s loan losses are actually “slightly worse” than the industry average at 5.5% of outstanding balances. While Klarna’s customers do pay off their instalment loans more quickly, it is not clear that Klarna’s business model is really different from that of banks, so investors could be forgiven for giving it a “more bank-like valuation” rather than treating it like “a high-growth company”.
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Sweden’s Klarna is the “new kid on the block” when it comes to BNPL in the US, says Theodora Lee Joseph in Finimize. This can be positive: the US market is much less developed than the European one, with a mere 9.8% of consumers using BNPL, compared with 20% in the UK and 33% in Germany. But competition in America is more intense, with Affirm and PayPal “vying for market share” too. Many US firms offer BNPL “as a free add-on”, which is another challenge. Klarna “might have to sacrifice margin to stay competitive”.
Still, Klarna isn’t the only company that has decided to delay a US listing for now, says the Financial Times. Ticketing company StubHub, virtual physical-therapy company Hinge Health and Israel-based trading platform eToro have, too. This marks a “stark turnaround” from expectations at the start of the year that the IPO market “would boom under an ostensibly pro-business Republican administration”.
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