In a significant move that poses a challenge to London’s financial landscape, the buy now, pay later juggernaut Klarna has officially filed for a much-anticipated flotation on the US stock market.
The renowned Swedish fintech company announced on Wednesday morning that it had “confidentially submitted” its application to the US Securities and Exchange Commission (SEC) in connection with the intended initial public offering (IPO) of its ordinary shares.
Klarna, positioned as one of the most prominent players in the global buy now, pay later (BNPL) sector, indicated that the definitive price range for its IPO, as well as the number of shares to be offered, has yet to be finalized. Industry experts anticipate that the firm’s market debut will easily secure a multibillion-pound valuation.
Klarna achieved an impressive peak valuation of $46bn (£36bn) during a 2021 funding round led by Japan’s SoftBank, highlighting its significant growth in a competitive market. However, the company faced a challenging decline, with a drastic loss of 85% in value throughout 2022, bringing its worth down to an estimated $6.7bn, a scenario exacerbated by rising interest rates that adversely affected the technology sector.
This downturn resulted in extensive layoffs, with Klarna cutting approximately 10% of its global workforce, which consisted of around 7,000 employees.
As financial markets began to stabilize and Klarna managed to return to profitability, whispers around the revival of the company’s IPO plans began to circulate.
The establishment of a British holding company last year ignited speculation that the London Stock Exchange (LSE) was potentially poised to facilitate the listing of Klarna shares, despite emerging UK government regulations aimed at overseeing the BNPL sector. The UK continues to be Klarna’s third most significant market, following Germany and the US.
The decision for Klarna to pursue its initial public offering in the United States rather than London underscores a growing trend of high-profile company listings moving abroad, further diminishing London’s stature as a leading financial hub. The LSE has already seen several high-stakes IPOs, including tech firm Arm, which opted for a listing on Wall Street in August 2023, and prominent businesses such as Flutter and Tui also announcing transitions of their main listings from London to alternative marketplaces like New York and Frankfurt this year.
According to Kathleen Brooks, research director at the brokers XTB, this decision reaffirms the competitive landscape in which tech companies increasingly favor US markets for their IPOs. She remarked, “There had been speculation that Klarna could list in the UK. However, this is another example of a tech company choosing the US over the UK.”
Klarna currently boasts a global workforce of about 3,800 employees, reflecting its resilience and ability to adapt amid shifting market dynamics.
**Interview with Financial Analyst Laura Chen on Klarna’s IPO Plans**
**Editor:** Good morning, Laura. Thank you for joining us today to discuss Klarna’s recent move to pursue an IPO in the US. What are your initial thoughts on this decision?
**Laura Chen:** Good morning! Klarna’s decision to file for an IPO in the US is indeed a significant step. It shows their commitment to scaling up and potentially recovering from their challenges in the past year. The US market presents vast opportunities, especially for fintech companies.
**Editor:** Speaking of challenges, Klarna faced a substantial decline in valuation over the past year. What factors do you think contributed to this downturn?
**Laura Chen:** Several factors played into that decline, notably the rising interest rates and economic uncertainty which affected consumer spending. As a leader in the buy now, pay later sector, Klarna’s business model became more vulnerable in a tightening financial environment. This led to a combination of reduced consumer demand and increased operational costs, which ultimately impacted their market value.
**Editor:** Klarna had a peak valuation of $46 billion in 2021 and has since seen its worth decrease to around $6.7 billion. Do you think they can rebound to a multibillion-pound valuation with this IPO?
**Laura Chen:** It’s certainly possible, especially considering their previous peak and the growing interest in BNPL services. However, a lot will depend on how they position themselves in the current market landscape, attract investors, and if they can regain consumer confidence. The fact that they’ve already pulled off a quite ambitious valuation in the past does give a decent reference point.
**Editor:** What impact do you think Klarna’s IPO could have on the broader fintech sector, particularly in London?
**Laura Chen:** Klarna’s IPO will likely create ripple effects across the fintech landscape, especially in London, which has been a hotbed for fintech innovation. If Klarna successfully executes its IPO and garners strong demand, it could reinvigorate investor interest in other BNPL and fintech companies as well. Conversely, if they struggle, it could lead to increased scrutiny and caution among investors in this sector.
**Editor:** what should potential investors keep in mind as they look at Klarna’s IPO?
**Laura Chen:** Investors should remain cautious yet optimistic. It’s essential to evaluate Klarna’s financial health, its plans for future growth, and how it intends to adapt to the current economic climate. Moreover, given their recent history, they should consider how Klarna plans to manage risk and navigate potential downturns in consumer behavior.
**Editor:** Thank you, Laura, for your insights. It will be interesting to see how Klarna’s IPO unfolds and its impact on the financial landscape.
**Laura Chen:** Thank you for having me! I’m looking forward to following this story as it develops.
