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Klarna's US IPO Announcement
$15-20B Valuation, 1% Default rates globally
Klarna, the Swedish fintech company, has officially filed for an initial public offering (IPO) in the United States. The company confidentially submitted a draft registration statement to the Securities and Exchange Commission (SEC).
Key Details of the IPO
Valuation: The IPO is expected to value Klarna between $15 billion and $20 billion
Current Status: The number of shares and price range have not yet been determined
Timing: The IPO is anticipated to take place after the SEC completes its review process, likely in the first half of 2025
Valuation History
Klarna's valuation has undergone significant changes:
2021: Peaked at $45.6 billion
2022: Dropped to $6.7 billion
Current: Recovered to approximately $14.6 billion
Background and Context
Founded in 2005, Klarna is a buy-now-pay-later (BNPL) fintech company
The US is now Klarna's biggest market by revenue
The company has around 85 million customers globally
Recent Developments
In October, Klarna experienced boardroom turbulence, with shareholders voting to remove a board member
The company has been expanding its services, including new savings and spending account features
The IPO comes after months of speculation and follows Klarna's strategic efforts to establish itself in the US market
Klarna entails in their report details about their Credit Risk Models and Underwriting
Alternative Data and Machine Learning Approach:
Uses multiple data sources for credit decisions
Three out of five major BNPL providers use credit bureau profiles
Employs alternative data strategies, including:
Time of transaction analysis
Dynamic credit limit adjustments based on payment reliability
Specific Credit Risk Metrics:
Consumer credit losses: Stable at less than 0.5% of GMV
Losses rose slightly from 0.37% to 0.45%, primarily due to US market growth
Unit Economics
Key Financial Metrics:
Revenue Growth: 27% year-over-year
Take Rates: 2.54% (up 21 basis points)
US Market Contribution: 29% of group revenue
Gross Margins:
Established markets: Exceeding 60%
US market: 26% (up 7 percentage points YoY)
Performance Highlights:
Adjusted operating income: Shifted from -SEK 456m to +SEK 673m
Average revenue per employee: Increased 73% to SEK 7.0m
Competitive Positioning
Market Strengths:
85 million global customers
Expanding merchant network (68,000 new partners)
38% year-over-year growth in US revenues
Competitive Differentiation:
AI-focused platform
Expanding savings and spending account features
Network effect with merchant and consumer cohorts
Regulatory Landscape
CFPB Regulatory Developments:
New interpretive rule classifies BNPL as equivalent to credit cards
Required to provide:
Refunds for returned products
Merchant dispute investigations
Payment suspension during investigations
Klarna's Regulatory Stance:
Argues for a tailored regulatory framework
Emphasizes lower risk compared to traditional credit cards
The IPO is Klarna's strategy to strengthen its position in digital payments and consumer credit.
Credit Risk Assessment Methodology
Underwriting Approach:
Performs soft credit checks that do not impact credit scores
Utilizes advanced AI and machine learning models for risk assessment
Creates comprehensive financial profiles of customers during payment journeys
Key Underwriting Characteristics:
70% of BNPL applications get accepted, compared to 40% for traditional credit cards
Global default rate stands at less than 1%
99% of payments are successfully repaid
Comparative Performance Metrics
Default Rates Comparison:
Credit Type | Default/Delinquency Rate |
---|---|
Klarna BNPL | <1% globally |
Credit Cards | Significantly higher delinquency rates |
Customer Acquisition and Risk Management
Acquisition Strategies:
Soft credit checks integrated seamlessly into purchase journey
Combines traditional and non-traditional data for underwriting
Average order value around $150, reducing default risk
Performance Indicators:
96% of US BNPL purchases paid early or on time
31% of Pay in 4 users pay bills early
65% pay on time
Only 4% incur late fees
Technological Innovations
Risk Assessment Technology:
Real-time decision-making framework using Amazon Kinesis
Millisecond latency for risk assessments
Ability to replay past events for data verification
Capable of handling 10x growth in transaction volume
Unique Underwriting Advantages
Capital Efficiency:
Can recycle capital approximately 9 times per year
81% of balance sheet turns over in 3 months or less
Allows rapid improvements in credit loss management
Regulatory Compliance:
Proactively underwriting every transaction
Focuses on responsible lending practices
Transparent about credit assessment processes
Customer Demographics
User Profile:
Average US user age: 36 years
Financial Impact
Revenue and Efficiency:
22% revenue increase to SEK 23.5B
AI deployment increased revenue per employee by 73%
Adjusted operating profit of 673m SEK in H1 2024
This comprehensive analysis demonstrates Klarna's sophisticated approach to risk management, leveraging technology and data-driven insights to minimize default risks while providing flexible credit solutions.
Our Opinion
Their valuation journey is notable, dropping from $45.6B to $6.7B and now stabilizing at $15-20B for the IPO, which adds credibility by showing realism and efficiency. With global default rates under 1% and a 70% application acceptance rate, compared to traditional credit cards' 40% acceptance and higher defaults, they're clearly doing something right with their AI models. Their 40-day average credit portfolio duration allows them to recycle capital 9 times a year, offering flexibility in risk management.
Klarna's looking like one of the more serious players in the space. They've got the tech, they've got the risk management, and most importantly, they've shown they can take a punch and keep going. Alternative business lenders should watch their US expansion and regulatory strategies closely.
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