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The Swedish buy now pay later (BNPL) platform has grown to become one of the world's most recognizable fintechs, but is it strong enough to go from strength to strength following a $17 billion valuation on its debut?
Launching on the New York Stock Exchange (NYSE), Klarna (NYSE:KLAR) had raised $1.4 billion during its IPO. The BNPL's debut also enjoyed a strong pop, selling shares at $40, above its announced range of $35 to $37, before opening at $52.
While the initial furor surrounding Klarna eventually settled around the $46 mark, the company's opening valuation of $15 billion has steadily climbed to $17 billion. So, what's next for the stock?
Klarna is one of the biggest names in the BNPL market, which has grown in popularity among consumers in recent years.
In 2024, 128 million US adults used buy now, pay later services, amounting to $340 billion in global transaction value last year. Transaction values are expected to accelerate at a CAGR of 12.3% through 2030, with Klarna likely to be a key beneficiary of this market growth.
Another positive for Klarna is that younger consumers are frequent users. By late 2024, 44% of Gen Z and 47% of millennials reported BNPL usage, while 38% of all US consumers claimed to use the payment service.
According to CNBC's Jim Cramer, Klarna's performance should be a cause for optimism among investors.
The Mad Money host looked to the fintech's offerings aside from BNPL, such as consumer financing and spending management insights, to illustrate that Klarna has plenty to offer users. The company also has strong revenue streams from advertising, budgeting tools, and interest payments from traditional lending.
Crucially, Klarna had also been profitable for some time before prioritizing growth in 2019, underlining that the company's operating model is capable of making money, even if it's been unprofitable in recent years.
Despite this, Klarna's IPO should be taken with a pinch of salt by investors who focus on the long-term game. Much of the company's shares were sold by existing shareholders, rather than the company itself, which indicates that the company isn't planning on using its offering to reinvest in growth, and rather that shareholders have identified an opportunity for exit liquidity.
Cramer has also pointed out that the strong performance of Klarna's Wall Street peers, Affirm and Sezzle, which have both posted three-digit growth over the past year, illustrates the level of opportunity Klarna has to continue growing following its debut.
Affirm went public in early 2021 and has been relatively volatile for some time. Although the stock is still almost 50% below its all-time high during the pandemic era, growth of more than 100% in the 12 months since September 1, 2024, shows that the industry is showing an upward trend.
Crucially, Affirm's market capitalization of $28 billion also shows that Klarna has plenty of room to rally further.
Given that Klarna possesses a customer base of 90 million users compared to the 18 million active consumers served by Affirm, it's entirely possible for the former to capture more market growth. However, these figures need to be contextualized by the fact that Affirm only operates in the US and Canada, while Klarna has a global presence.
Despite a positive debut, Klarna still faces significant challenges that could impact its growth in the future.
"On the surface, a $17 billion capitalization for an unprofitable fintech in an extremely competitive market can be off-putting for investors," explained Steve Frauzel, Head of Market Insights at global brokerage brand Just2Trade. "Reduced disclosure rights for foreign issuers could also lead to widespread anxiety among shareholders."
"However, Klarna remains one of the world's most innovative companies in a growing BNPL landscape that appears destined to grow further in the years ahead. An innovation pipeline that features a new flexible debit card in partnership with Visa illustrates that the stock could emerge as a market leader worldwide."
Klarna's long-term plans to break into the competitive US BNPL market will be supported by the launch of its Klarna Card, a debit product that offers built-in flexible payment options, powered by Visa Flexible Credential.
The card will allow consumers to pay immediately or later online and in-store at more than 150 million Visa-accepting merchants worldwide. With a waiting list of more than 5 million consumers, the successful launch of the card, which is currently in a trial phase in the US, will play a key role in the future performance of the stock on Wall Street.
Klarna is a BNPL innovator that's invested significant sums towards becoming a market leader in a competitive industry.
While the stock's market capitalization may seem steep for a company that has plenty of rivals to conquer on its path towards world domination, Klarna has a strong innovation pipeline that's sacrificed its short-term profitability for industry strength.
The success of the Klarna Card will be telling, but the stock's status as a global household name in BNPL should be a cause for optimism. Breaking into American markets will decide its long-term success.
Disclosure: On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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