Klarna just threw a spanner in the works weeks before its long-awaited IPO in New York. The Swedish buy now, pay later giant revealed losses had ballooned to $53 million, up from $18 million in the same quarter last year. On the surface, it looks like trouble, but dig deeper and the numbers tell a far more interesting story.
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Klarna’s Revenue And Growth Still Surge Ahead Of Listing
Revenue jumped 20% year-on-year to $824 million. Gross merchandise volume, or GMV, which is the total value of all transactions on its platform, climbed 19% to $31.2 billion. In the United States, Klarna’s biggest growth market, GMV surged 37% thanks to partnerships with Apple Pay (AAPL), Google Pay (GOOGL), and DoorDash (DASH).
This kind of expansion is a key selling point to IPO investors. It shows Klarna is still capturing market share at pace despite intense competition and regulatory scrutiny in the buy now, pay later space.
Why Provisions For Bad Loans Are Rising
Provisions for credit losses rose 64% to $174 million. On the surface, this looks like Klarna is struggling to get customers to pay back loans. However, Chief Executive Sebastian Siemiatkowski said the opposite is true. Delinquency rates are actually falling.
The increase in provisions is mainly due to Klarna’s “Fair Financing” program, which allows customers to pay off more expensive purchases over a longer period. The company immediately sets aside a small amount of money when issuing these loans in case of non-payment, even when customers are expected to pay them back.
Banking Ambitions Could Be The Real IPO Pitch
Beyond its core buy now, pay later model, Klarna is expanding into digital banking. Last month, it received approval from the UK’s financial regulator to operate as an Electronic Money Institution. This will allow Klarna to offer savings accounts and debit cards to its 11 million UK customers.
The Klarna Card is already popular in European markets and is being rolled out in the United States. The firm now has 111 million active consumers worldwide and 200,000 retail partners.
IPO Investors Should Weigh Risk versus Reward
Klarna’s losses might concern some investors who focus on profitability. Others will look at the bigger picture of rapid growth, an expanding product line, and a healthy customer base that is paying on time.
If Klarna can convince the market that higher provisions are a sign of expansion rather than trouble, the IPO could still be well-received. However, with U.S. markets volatile and fintech valuations under pressure, the timing will be a true test of investor appetite.
Is AFRM a Good Stock to Buy?
Klarna may still be a private company, but investors who want exposure to the buy now, pay later market often look toward its biggest public rival, Affirm Holdings (AFRM). Over the past three months, 13 Wall Street analysts have weighed in, with eight giving AFRM a Buy rating and five recommending Hold. This forms a Moderate Buy consensus. Analysts’ average 12-month AFRM price target sits at $76.10, which points to a potential 1.2% downside from where the stock trades today.
