Klarna IPO: Bankers raise hopes of 2021 deal

05 February 2021 - 01:53 pm UTC

by Amy-Jo Crowley, Pablo Mayo Cerqueiro, Auri Aittokallio and Hanna Gezelius, with analytics by Divya Anandani and Saritha Dantu

  • Peer Trustly could test fintech waters
  • Stockholm listing still in play

IPO advisers are positioning themselves for a potential stock market debut by Swedish fintech Klarna in the second half of this year, according to several bankers following the situation.

 

Bankers expect a Klarna IPO later this year, though RFPs have yet to go out as the company continues to gear up for public markets, one adviser said. The IPO could come on the back of Trustly’s, the second banker said. Swedish fintech peer Trustly has reportedly mandated Goldman Sachs and JP Morgan for a potential IPO that could value it at around EUR 8bn.

 

The existing boom in e-commerce valuations generates tailwinds for a listing sooner rather than later, a third banker added. Yet, a timetable is not set in stone, as two further bankers suggested. The company might not immediately need capital following its latest USD 650m (~EUR 540m) funding round in September, one lawyer indicated, while noting that the business is not currently profitable. Newly appointed CFO Niclas Neglen is also just getting started on the job, one of the bankers noted. The group announced the appointment of a new chairman and three new board members in December.

 

Klarna CEO Sebastian Siemiatkowski was quoted last August as saying the group would likely pick the US as its IPO home, given its fast overseas growth. However, the fintech is now facing pressure to list in Sweden instead, one banker said.

 

Stockholm is the most liquid stock market for growth companies in Europe, the banker argued, while adding that Spotify’s [NYSE:SPOT] decision to list in the US left a sour taste in its home country. Peer Trustly, which was said to be considering both markets, is leaning towards its home exchange, according to press reports.

 

Fintech valuation premium

Klarna was last valued at USD 10.65bn at its September funding round, making it the highest-valued private fintech in Europe, as per a press release. It could potentially fetch a double digit EV/sales multiple, which could point to USD 15bn-USD 20bn when it lists, one banker suggested.

 

Klarna recorded an increase in net operating income of 37% YoY to USD 742m in the first nine months of 2020, while gross merchandise volume rose 43% YoY, amounting to USD 35bn. Credit losses totalled SEK 1.6bn (~ USD 190m) over the nine-month period, up from SEK 1.2bn the year before, though the group reported a recovering trend. The bottomline stood at SEK -620m.

 

Possible payments peers previously reported by this news service include PayPal [NASDAQ:PYPL], Adyen [AMS:ADYEN] and Square [NYSE:SQ]. Based on Klarna’s TTM Sales of SEK 9.03bn (EUR 895m) and average Price/Sales multiple of 15.85x amongst its peers, its market cap would come to EUR 14.1bn, according to Dealreporter analytics.

 

Klarna could also draw parallels with Australia’s Afterpay [ASX:APT] as it also provides buy-now-pay-later (BNPL) services, one banker suggested. Adding Afterpay – which trades at a dramatically higher multiple than the others – to the peer group would raise the valuation to EUR 29.3bn.

 

Trustly would be the only local comparable in the basket if it lists before Klarna, one banker said.

 

Founded in 2005, Klarna offers BNPL services, supporting some 90m shoppers and 200,000 merchants in 17 countries, as per its corporate website. It has a banking licence and takes on credit risk.

 

Because there is a credit component to the Klarna model, its valuation will depend on where it lands between a payments business and a consumer finance operation, one banker said. Payments firms tend to trade at higher multiples than consumer lending ones.

 

Klarna is perceived as an online payment enabler with an international footprint, another banker argued. It earns money from merchants and has its own payment applications as opposed to a traditional consumer lender, he added.

 

However, there is still potential credit risk for investors, three bankers said. Growth could become negative in the event that an economic downturn causes a correction in the market, one added.

 

The business may also face some regulatory scrutiny, according to the advisers. For example, the UK is looking to regulate BNPL products following a review of the unsecured credit market by the Financial Conduct Authority (FCA), one banker noted. Klarna has also drawn scrutiny in Sweden around its marketing activities, another one said.

 

The impact of regulation on Klarna’s business will vary depending on the jurisdiction, another banker countered, adding that regulation in the US tends to be less strict. While introducing new rules can affect financials in the short term, it is not necessarily a bad thing as it often plays to the strengths of incumbents, the lawyer said.

 

Klarna said it does not comment on IPO speculation, as it is focused on its growth plans. The group’s priority is to continue to scale the business globally and drive value for consumer and merchants, a spokesperson said, while adding that growth across markets is strong, particularly in the US.

 

Klarna’s qualifying shareholders comprise Sequoia CapitalBrightfolk A/SKool Investment LP and Victor Jacobsson, as per its 2019 governance report. Further investors include Silver Lake, GIC, Commonwealth Bank of Australia and Permira, among others.