The Swedish fintech Klarna confirmed that it is taking steps “towards an eventual IPO.”
The company has begun a legal entity restructuring process to establish a holding company in the United Kingdom "as an important first step" in its plans for an initial public offering, a Klarna spokesperson said. The move comes on the heels of a positive third quarter in which Klarna turned a profit and reported 30% more revenue of around $550 million.
The creation of the British holding company, according to the spokesperson, is an administrative change that has been in the works for more than 12 months “and does not affect anyone's functions or Klarna's Swedish operations.” Creating a new legal entity at the top of the company's corporate structure would allow it to go public more easily.
“Klarna Holding will remain the regulated financial holding company under the direct supervision of the SFSA (the Swedish Financial Supervisory Authority), and we will continue to have a Swedish banking license. This entity would be registered in the United Kingdom,” the company added.
CEO and co-founder Sebastian Siemiatkowski last week wrote to some of Klarna's 150 largest shareholders with the support of the company's management, as well as venture firms Sequoia and Heartland, to ask for their agreement to create the new legal entity.
According to sources, Klarna has not yet made a decision on the timing or location of the IPO. It chose to establish the holding company in the United Kingdom because it considers the region “a highly respected global financial market, with a legal, regulatory and capital markets framework that is familiar” to its global investor base.
Last week, Klarna reached an agreement with workers who were going on strike this week in Sweden, the company's home country.
Globally, Klarna has 150 million customers, 500.000 business partners and around 5.000 employees. Its most recent valuation was $6.700 billion which was down 85% from a $45.600 billion valuation it boasted a year earlier.
Earlier this year, Siemiatkowski told him that the United States had become Klarna's largest market by revenue, surpassing Germany. Giving people the ability to pay in installments (what is now commonly known as buy now, pay later) is today only part of Klarna's business, Siemiatkowski stressed at the time.
The app has evolved over time to become what Klarna describes as “an end-to-end shopping destination” for consumers with features beyond payments, such as money management tools, delivery tracking, wish lists, Digital receipts and price drop notifications.
“We have been classified as suppliers of BNPL extension, but that is no longer true, even if it was years ago. We offer many other use cases that are growing at a much faster rate than the original BNPL product,” said Siemiatkowski. "But the stamp is there, so it takes a little time for people to recognize the change."
It is not the only long-term IPO
Notable among the Klarna IPO rumors is the fact that it is far from the only billion-dollar private company we're seeing approach the public markets. It's not even the only fintech player on the list.
Elsewhere in digital finance, Circle is said to be preparing to go public. The well-known stablecoin provider previously attempted to go public via a SPAC combination, but abandoned that approach. Now, in a rising interest rate environment, your business could be in the shape it needs to embark on another attempt to go public, without the need for a blank-check helping hand.
And fintech is not the only startup sector that is seeing the result of a mountain of private capital and work until it becomes something ready to go public. Shein, the China-based fast fashion giant, is also said to be approaching its own IPO. That company would likely be the most valuable of the three, potentially reaching a valuation of up to $90.000 billion on its own listing.
Klarna's future offering won't come close to that figure, but it will still have an impact. The company's most recent private market valuation looks defensible at its current scale and perhaps even more so with a bit more growth under its belt.
Any warming of public markets could cause more names to be released. When will Chime finally leave the shallow pool and truly dive into the world's largest liquidity streams? Stripe? Databricks? Canvas? Revolut? I look? Discord? Plaid?
There is great wealth waiting to be unlocked. Klarna is the most open in terms of its recent results, so you would hope that its honesty regarding its eventual inclusion on the list is contagious.
