The Klarna IPO: A High-Conviction Fintech Play in a Risk-On Market

The Klarna IPO, set to raise up to $1.27 billion at a $14 billion valuation, represents a pivotal moment for the buy now, pay later (BNPL) sector. At a price-to-sales (P/S) ratio of 5x 2024 revenue, Klarna sits between high-growth fintechs and established payments processors. This valuation must be evaluated through three lenses: valuation rationality, market positioning, and regulatory risks.

Valuation Rationality: A Premium for Profitability and Scale

Klarna’s 5x multiple appears modest compared to Afterpay’s 15.01x but exceeds Affirm’s 3.43x and PayPal’s 1.77x [1]. This discrepancy reflects Klarna’s unique position: it is the only BNPL player achieving consistent profitability. In 2024, Klarna reported $2.8 billion in revenue and an adjusted operating profit of $181 million, a stark contrast to Affirm’s unprofitable status on a non-adjusted basis [2]. While Affirm’s 46.6% YoY revenue growth outpaces Klarna’s 25.1%, Klarna’s gross profit margins (47–49%) dwarf Affirm’s 40%, enabling higher profitability despite a lower take rate (2.7% vs. 7.3%) [3].

The valuation also accounts for Klarna’s geographic diversification. With 26 markets and 180 million active users globally, including 47.2 million in the U.S. (its largest market), Klarna’s scale justifies a premium over more regional players like Afterpay [4]. However, the $14 billion valuation remains a 69% discount from its 2021 peak of $45.6 billion, reflecting post-pandemic market realism and regulatory headwinds [5].

Market Positioning: AI-Driven Efficiency and Strategic Partnerships

Klarna’s competitive edge lies in its AI-first strategy. The company has leveraged automation to cut costs, achieving breakeven in 2024 while peers like Affirm still chase profitability [6]. AI-driven tools now handle customer service, underwriting, and fraud detection, reducing operational expenses and improving user experience. This efficiency is critical in a sector where margins are razor-thin and customer acquisition costs are high.

Strategic partnerships further solidify Klarna’s position. Collaborations with Stripe, Walmart, and Amazon (via Affirm) highlight its integration into the broader fintech ecosystem [7]. The U.S. market, where Klarna’s revenue grew 39% YoY to $850 million in 2024, is a key battleground. With 790,000 merchants using its BNPL solution, Klarna is closing the gap with Affirm’s 13% market share [8].

Regulatory Risks: A Double-Edged Sword

The BNPL sector’s rapid growth has attracted regulatory scrutiny. In the EU, the second Consumer Credit Directive (CCD2) now caps APRs and mandates affordability checks, increasing compliance costs for providers [9]. Germany’s draft bill, which abolishes exemptions for small-value BNPL products, could further strain margins [10]. In the U.S., while the CFPB has deprioritized federal enforcement, state-level actions are proliferating. For example, California’s 2025 law requires BNPL providers to disclose APRs, a move that could reduce consumer adoption.

Klarna’s reliance on a low-margin, high-volume model makes it particularly vulnerable to regulatory shifts. Rising interest rates and inflation also pose macroeconomic risks, as BNPL’s appeal hinges on low-cost, interest-free financing [11]. A resurgence in inflation could erode consumer confidence and increase credit losses, as seen in Klarna’s Q2 2025 net loss of $53 million [12].

Conclusion: A Calculated Bet on Fintech’s Future

Klarna’s IPO is a high-conviction play for investors who believe in the long-term potential of BNPL. At 5x revenue, the valuation is conservative relative to its profitability and market leadership, especially in the U.S. However, the risks—regulatory fragmentation, macroeconomic volatility, and competitive pressures—cannot be ignored.

For Klarna to justify its valuation, it must continue executing its AI-driven cost-cutting strategy while navigating a complex regulatory landscape. If successful, it could reinvigorate investor appetite for fintechs, proving that profitability and growth can coexist in a sector once dismissed as a speculative bubble.

Source:
[1] Klarna IPO targets 14B. Will AFRM, PYPL feel the heat? [https://nai500.com/blog/2025/09/klarna-ipo-targets-14b-will-afrm-pypl-feel-the-heat/]
[2] Klarna IPO: S1 Breakdown [https://www.mostlymetrics.com/p/klarna-ipo-s1-breakdown]
[3] Klarna is going public [https://www.popularfintech.com/p/klarna-is-going-public-here-is-how-it-compares-affirm]
[4] Klarna and the Buy Now, Pay Later Market [https://www.alpha-sense.com/resources/research-articles/klarna-buy-now-pay-later/]
[5] 3 reasons why Klarna's valuation has fallen by 69% from its ... [https://fortune.com/2025/09/02/klarna-ipo-bnpl-unicorn-3-reasons-why-fell-69-percent/]
[6] Klarna IPO: S1 Breakdown [https://www.mostlymetrics.com/p/klarna-ipo-s1-breakdown]
[7] Klarna and the Buy Now, Pay Later Market [https://www.alpha-sense.com/resources/research-articles/klarna-buy-now-pay-later/]
[8] BNPL Faceoff, Affirm vs. PayPal: Who's Really Checking Out Stronger [https://www.nasdaq.com/articles/bnpl-faceoff-affirm-vs-paypal-whos-really-checking-out-stronger]
[9] Impact Of CCD2 On Buy Now Pay Later Services In Europe [https://www.oliverwyman.com/our-expertise/insights/2025/feb/impact-of-ccd2-on-buy-now-pay-later-services-in-europe.html]
[10] Germany: “Buy Now Pay Later” – BMJV publishes draft bill ... [https://www.twobirds.com/en/insights/2025/germany/buy-now-pay-later-bmjv-verffentlicht-gesetzentwurf-zur-umsetzung-der-neuen-verbraucherkreditrichtlin]
[11] Klarna's IPO filing 2.0: an incredible FinTech transformation ... [https://linas.substack.com/p/fintechpulse964]
[12] Is anyone seriously thinking about jumping into Klarna's ... [https://www.reddit.com/r/investing/comments/1n6wo42/is_anyone_seriously_thinking_about_jumping_into/]