Klarna studies ‘eventual IPO’ after first profit in 4 years

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Klarna reported its first quarterly profit in four years as the Swedish “buy now, pay later” pioneer prepares for a possible stock market listing.

The Swedish fintech eked out a net profit of SKr90mn (€8mn) in the third quarter, compared with a loss of SKr2.1bn a year earlier, while revenue increased 30 per cent to SKr6bn. It almost halved its credit losses to SKr800mn, a drop which it attributed to improvements in the precision and accuracy of its underwriting models.

Klarna is taking what it calls an “early step on a journey towards an eventual IPO” by establishing a UK holding company to go along with its Swedish banking licence. It has not yet decided on the location or timing of any listing.

The once high-flying payment group was forced to slash its valuation by 85 per cent to $6.7bn last year and cut a tenth of its workforce after reporting heavy losses in the wake of rising interest rates.

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But Sebastian Siemiatkowski, the co-founder and chief executive, said in August that Klarna was ready for an IPO whenever market conditions improved after establishing itself in the US, returning to profitability and demonstrating it had growth potential.

On Monday, Siemiatkowski said that Klarna had “achieved exactly what we set out to do” by posting a quarterly profit and that it would “build on this momentum” in the final quarter to “drive value” to its consumers and merchants.

A London listing would be a boost for the LSEG as companies, such as Cambridge-based chipmaker Arm, have opted for the greater liquidity and valuations offered by US public listings. A series of UK flotations have flopped in recent months, including CAB Payments, another fintech whose shares collapsed 72 per cent last month after it cut its revenue forecasts.

Other payments companies have also been hit by weakening investor sentiment in the economic downturn. Shares in US rival Affirm are down more than 85 per cent since their peak in November 2021, while Dutch fintech Adyen suffered an almost 40 per cent drop in its market cap in August after missing analyst expectations. 

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In addition to economic pressure, the sector is under growing scrutiny from regulators who have expressed concerns about whether BNPL companies are doing enough to scrutinise whether the loans they make are affordable. Data released by the UK’s Financial Conduct Authority in October showed that frequent users of BNPL were more likely to be in financial difficulty.

Klarna, which partners with retailers including H&M, Ikea and Airbnb, earlier this autumn launched an AI-powered feature allowing its customers to find where to purchase items at advantageous deals by snapping pictures of them through its app.

Additional reporting by Siddharth Venkataramakrishnan in London

Source: https://www.ft.com/content/dc1f07a9-406f-460e-b5a4-a08efaf3d4ef