Klarna Stock Surges 14.55% on IPO, Raising $1.37 Billion

Klarna Group, a financial services company, saw its stock surge by as much as 43% on its first day of trading, ultimately closing at 14.55% higher, valued at 45.82 dollars per share. The company's IPO was priced at 40 dollars per share, exceeding the market's expected range and attracting significant oversubscription, with nearly half of potential investors left empty-handed. The IPO raised 1.37 billion dollars for Klarna and some of its investors, indicating continued growth in the new stock issuance market.

Based on the closing price, Klarna's market capitalization exceeded 17 billion dollars. While stock options and warrants may add to this valuation, it is still significantly lower than the 45.6 billion dollar peak reached during the online shopping boom of the 2021 pandemic. The company's valuation dropped to 6.7 billion dollars in a private funding round in 2022, due to pressures from inflation and rising interest rates on global fintech business models, including Klarna's "buy now, pay later" service.

For Klarna's CEO, the IPO solidified the company's evolution beyond its "buy now, pay later" roots. Klarna gained prominence during the e-commerce surge of the pandemic and has since expanded into other banking products such as savings, checking accounts, and credit cards. The CEO noted that investors are no longer primarily focused on the "buy now, pay later" aspect, indicating that Klarna's transformation and success have been recognized. The company now offers various payment methods, bank cards, and a range of retail, banking, and financial services.

Klarna, headquartered in Stockholm, has been expanding its "fair financing" products, allowing customers to repay large purchases over a longer period. While this has driven growth in net interest income, it has also impacted performance due to higher potential credit loss provisions required for these long-term loans. Currently, such loans make up about 2% of the company's total transactions. However, with the number of merchants offering these fair financing loans doubling in the past two years, this proportion is expected to increase.

Klarna has been preparing for its IPO over the past year. However, market turbulence caused by the announcement of retaliatory tariffs by Trump earlier this year disrupted the company's initial plans. The CEO paused the issuance until recently, when it was restarted. One of the most memorable moments during the roadshow was when a member of an investor team approached the CEO to request a Klarna credit card. The CEO recalled, "The security personnel said, 'Oh, you're from Klarna? I want a card. I'm on the waiting list. Can you get me one?' I think that was one of the most memorable moments of the entire process."

Klarna's IPO comes at a time when the U.S. IPO market is heating up, with companies like Circle and Figma seeing significant gains on their first day of trading. This year, IPOs have raised 25.7 billion dollars, surpassing the 20.4 billion dollars raised in the same period last year. In addition to Klarna, other companies preparing for IPOs this week include Gemini Space Station Inc., supported by billionaire Winklevoss brothers, and Legence Corp., backed by Blackstone Group.

Klarna and some of its shareholders sold 34.3 million shares at 40 dollars per share. Major sellers included executives, co-founder Victor Jacobsson, entities related to Sequoia Capital, and Heartland A/S, owned by Danish billionaire Anders Holch Povlsen, who collectively sold 29.3 million shares. The CEO mentioned that Klarna itself only sold about 200 million dollars worth of shares, as the company is already self-sustaining in terms of capital. The purpose of the IPO was to make stock trading more orderly than in the private market. The CEO explained, "We have had private investors and employee shareholders for 20 years—tracking these private transactions in Google Sheets has become very cumbersome over time."

According to the company's filings, Klarna reported a net loss of 153 million dollars and total revenue of 1.52 billion dollars for the six months ending June 30. This compares to a net loss of 38 million dollars and total revenue of 1.33 billion dollars in the same period last year. Sequoia Capital is expected to hold approximately 22% of the voting power post-IPO. Heartland will hold about 8.9%, Jacobsson about 8.8%, and the CEO about 7.4%. Sequoia Capital realized a 2.7 billion dollar gain on its initial investment through this IPO, with its holdings valued at 3.2 billion dollars at the time of Klarna's pricing, providing the venture capital giant with a return of over six times its investment.