Klarna’s $46 bln price tag endures only in theory

3 minute read

A smartphone displays a Klarna logo in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

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LONDON, May 19 (Reuters Breakingviews) - Investors used to love Sebastian Siemiatkowski’s disruptive zeal. The Swedish entrepreneur’s “buy now, pay later” (BNPL) firm Klarna received a $46 billion price tag on a June funding round last year. That now requires a rethink.

The tech selloff has made a mess of the fintech sector. BNPL rival Affirm’s (AFRM.O) share price has dropped 76% since January, leaving a market capitalisation of $6.9 billion. Fellow payments company Block (SQ.N) – led by Jack Dorsey – has dropped 48%.

The BNPL sector is struggling. Afterpay, acquired by Block for $32 billion, saw bad debts balloon to $177 million in the six months to December, from $72.1 million a year ago. True, entering new markets partly explains why. But fashion retailers such as Asos (ASOS.L), which partially rely on BNPL to increase sales, have also seen increasingly cash-strapped punters buying less. Meanwhile, in 2021, Klarna made an operating loss that was triple the one recorded in 2020.

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Siemiatkowski, who the Wall Street Journal reports is looking to raise another $1 billion, has some defences. In Germany and Sweden, Klarna is also a bank that holds consumer deposits. That’s important, because the stock market is worried about BNPL companies’ ability to secure funding after Affirm cancelled its asset-backed securitisation loans earlier this year. Klarna’s short-term instalment product, which doesn’t entail interest costs or late fees, will freeze the accounts of those who failed to pay and thus limit the growth of bad loans.

Even so, Klarna’s eyebrow-raising valuation is in peril. Affirm and fellow BNPL player Zip trade on an average of 8.2 times last year’s sales. At that level, Klarna would be worth a mere $11 billion.

Siemiatkowski could argue that his firm should be valued on a multiple of the gross merchandise value (GMV) it enables. Nearly 60% of the $80 billion of GMV Klarna processed last year was BNPL. Affirm and Zip trade on over 70% of GMV, implying a Klarna value of $36 billion. The rest of its business is the so-called “Pay Now” payments processing business, and European rivals Adyen (ADYEN.AS) and Nexi (NEXII.MI) trade on about 40% of GMV. For Klarna that adds $1.4 billion, meaning overall it would be worth $37 billion, slightly above the “low $30-billlion-range” cited by the WSJ.

Siemiatkowski could always just not raise new equity. But his employees will have been anticipating some way to turn their stakes into cash this year. They and he will have to get used to Klarna being worth a lot less.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Swedish fintech firm Klarna is aiming to raise up to $1 billion from new and existing investors in its next funding round, the Wall Street Journal reported on May 19, citing people familiar with the matter.

- Shares of Affirm rose 26% on May 13 after the buy-now-pay-later lender raised its revenue forecast and said it expected to achieve adjusted operating profitability by 2023. The company’s share price has declined 56% in the past 12 months.

- Fidelity, an investor in privately held payments processing giant Stripe, marked down the value of its holdings in the company by 9%, a year after the fintech startup was valued at $95 billion, according to filings in March.

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Editing by George Hay and Oliver Taslic

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