Klarna seeks $14 billion IPO valuation as it takes on the big banks. But can it turn a profit?

By Emily Bary

Klarna hasn't recorded an annual profit since 2018, and has seen its bottom line get hit by its expansion into the U.S.

Klarna competes with an assort of buy-now-pay-later fintech companies.

Klarna Group is looking to make a splash on Wall Street as it tries to broaden beyond buy-now-pay-later offerings - and turn a profit once again.

The financial-technology company (KLAR), which competes with the likes of Affirm Holdings Inc. (AFRM) and Block Inc.'s (XYZ) Afterpay, filed updated initial-public-offering paperwork on Tuesday that shows an intention to sell about 5.56 million shares on the New York Stock Exchange and trade under the ticker symbol "KLAR." Those share sales would allow the company to raise about $200 million through its IPO at the high end of the pricing range.

Additional shareholders intend to sell even more stock - about 28.8 million shares - meaning that the IPO could raise $1.27 billion at the high end of the range, when factoring in those sales and Klarna's own.

The company could register a $14 billion valuation at the high end of the range, well below the $45.6 billion valuation it fetched after a 2021 private funding round in the frothy pandemic era. Affirm's stock is down about 50% from its November 2021 peak.

Klarna is best known for letting people split payments into installments, but the company has been trying to become a more formidable player in the banking space. Chief Executive Sebastian Siemiatkowski took shots at traditional banks in a founder letter included in Klarna's prospectus, saying that banks have profited "for decades under the shield of misguided regulation, stifled competition and insurmountable barriers to entry," though he thinks Klarna "has broken through the barriers!"

The company makes money differently that banks that benefit from credit-card fees. Klarna monetizes its business by charging merchants in exchange for the higher conversion rates and larger order values that come from better payment flexibility for customers. The company also books advertising revenue and focuses on far shorter-term loan durations than banks do.

"This allows us to quickly react to market changes and efficiently manage credit risk," Klarna said in its prospectus. The company also said it uses machine learning to augment its "high-frequency, large-scale and real-time underwriting, which helps drive conversion rates and minimizes credit losses."

Now Klarna has gotten into money-management offerings, including savings accounts, as it strives to be

"consumers' everyday spending and saving partner, available everywhere and for everything," according to the prospectus. The company said it differentiates itself from traditional banks by offering instant refunds, cash-back services and real-time debit payouts.

Mizuho analyst Dan Dolev noted that Klarna has also taken a different approach than peer Affirm, focusing on letting people make purchases in a certain number of installments - think "pay in 4" -whereas Affirm gets most of its volume from interest-bearing loans. The strategic differences mean that Affirm has a more attractive profit profile, Dolev wrote in a note to clients late last year that he recently recirculated.

In the 12 months that ended in June, Klarna generated $3.1 billion in revenue, up 17% from a year before. The company booked a $100 million net loss during the period but saw improvement from a year earlier. Klarna said it was profitable for its first 14 years of operations before expanding into markets like the U.S. that have hurt the bottom line. The prospectus refers to Klarna's "deliberate balance of growth and profitability."

Affirm grew revenue 39% to $3.2 billion in the same period, while recording $52 million in net income.

Read: Affirm swings to profit as people flocked to its 0% APR loans and other offers

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-02-25 1349ET