Should You Buy KLAR Stock After the Klarna IPO?

The IPO market has been buzzing with activity this year, especially with companies in the financial domain. While stock and crypto exchange eToro (TORO) had a spectacular debut, stablecoin issuer Circle (CRCL) also saw strong demand for its shares when it came out with its own IPO. Now, adding to this checkered list will be Klarna.

About Klarna

Founded in 2005 and rebranded in 2010, Klarna is a Swedish fintech company that specializes in "buy now, pay later" (BNPL) services and broader digital financial tools. Klarna offers flexible installment payment options for shoppers in both online and in-store environments. It partners with processors like Worldpay, Adyen, Apple (AAPL) Pay, Google (GOOG) (GOOGL) Pay, and Stripe to embed Klarna's services widely across merchants and platforms.

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Seeking to raise about $1.7 billion by offloading roughly 34.4 million shares, the company's valuation is expected to soar to approximately $14 billion at the higher end of the expected price range. The price range is between $35 and $37. The company intends to use the net proceeds from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures.

Not just in BNPL, Klarna has ambitions to take on the traditional banks. Aiming at them, the CEO, Sebastian Siemiatkowski, said that banks have garnered undeserving profits for decades by operating “under the shield of misguided regulation, stifled competition and insurmountable barriers to entry.”

However, the reality is that Klarna had not reported an annual profit between 2018 (when it first launched its Klarna app) and just last year. It has been criticized for promoting a culture of debt by skeptics.

So, where does that leave the IPO? Should an investor subscribe to it? Let's try and analyze that.

Financials Providing Confidence

Although Klarna has yet to be consistently profitable, its revenues have grown at a CAGR of almost 14% in the past three years. The company reported revenues of $2.8 billion in 2024, which were $1.9 billion in 2022 and $2.3 billion in 2023. Losses turned into profits, as from a loss of $3.09 per share in 2022, Klarna recorded an EPS of $0.01 in 2024.

Moving on to some key metrics for a platform company like Klarna, the company has been showing steady growth on this front as well. Gross Merchandise Volume, which indicates the total value of all goods and services sold on its platform, came in at $105.01 billion, a year-over-year (YoY) growth of 14%. Its active customer count increased to 93 million in 2024 from 79 million in 2022, with average revenue per active customer rising to $30 from $24 in 2022.

The company is also operating cash flow positive, with the same coming in at $587 million in 2024. Although this marked a growth from 2022's figure of $336 million, it was lower than 2023's $808 million. Overall, Klarna's liquidity position remained solid as it ended 2024 with a cash and equivalents balance of $3.2 billion, much higher than its short-term debt levels of $1.21 billion.

Thus, Klarna's financials are on the correct path, accompanied by a steady rise in some of its key operating metrics. However, it should take measures to protect its newly found status as a profitable company while devising ways to grow the same in the coming years.

BNPL Focus With an Eye on Traditional Banking

Notwithstanding its lofty ambitions, Klarna is still essentially a BNPL company. That is not a slight on the company, as the BNPL market is poised for substantial growth. While in 2025, it is at about $560.1 billion; the same is projected to reach $911.8 billion by 2030. And Klarna, with operations in over 26 countries, a partner network of nearly 675,000 global merchant partners, and a dominant 71.9% website share in the global BNPL market, it can be safely assumed that Klarna is set to be a very formidable player in this booming space.

Meanwhile, Klarna has positioned itself as a default checkout option for many online retailers, appearing alongside familiar methods like credit cards and PayPal (PYPL). Where a formal merchant partnership is absent, the company offers an alternative: customers can obtain a one-time Visa (V) card loaded with the exact value of their intended purchase. This card works both online and at physical locations, with Klarna settling the payment directly with the merchant and the customer repaying Klarna over the agreed installment schedule.

For merchants, the biggest advantage is the opportunity to capture new customers without major setup costs. In many instances, Klarna’s solution can be added with minimal technical adjustments, or not at all when using single-use virtual cards. Businesses often report higher transaction values and more frequent sales when Klarna is available, a pattern that has made it a compelling addition to the payment mix.

Customers, on the other hand, benefit from ongoing promotions tied to Klarna’s partner network, which can include discounts, cashback offers, and special deals worth as much as 12%. The company has also moved beyond payments into retail banking in select markets, where it provides interest-bearing savings accounts that match central bank rates and fixed-term deposit products with varied maturities.

Its banking ambitions gained regulatory backing in 2017 when Klarna secured a Swedish banking license. This allows the company to earn interest income from deposits and investments, much like traditional banks. The sharp rise in interest rates over the last two years has significantly boosted returns, with interest income climbing 17% in 2023 and a further 33% in 2024 to reach $675 million. Access to low-cost deposit funding has also reduced capital expenses, enabling the company to extend short-term BNPL loans of three to four months and longer-term financing at rates between 9 and 15%. Merchant fees remain a core revenue source in both cases.

Yet challenges persist. After peaking at a $45.6 billion valuation during the post-pandemic fintech boom in 2022, Klarna is now pursuing a valuation close to one-third of that figure. Regulatory headwinds add further uncertainty. Authorities in several markets are tightening oversight of BNPL operators in an effort to curb consumer debt. In the UK, this has taken the form of enhanced know-your-customer requirements and mandatory affordability checks. In Sweden, regulators fined Klarna SEK 500 million for shortcomings in anti-money-laundering compliance, customer verification, and risk assessment during a period spanning 2021 to 2022.

Final Take

The case for Klarna seems to be a curious one. While it is a significant player in its core business of BNPL with a growing business, its lack of sustainable profitability, substantial valuation decline, regulatory risks, and growing ambitions to become a banking enterprise raise concerns. Rather, it should look to build a track record of consistent profitable growth through its core BNPL business, and then, after achieving a semblance of stability in that market, it may look to venture into the traditional banking space.

On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.