Klarna set to price much-awaited US IPO in boost to fintech hopefuls

By Ateev Bhandari and Arasu Kannagi Basil

Sept 9 (Reuters) - Swedish buy-now, pay-later lender Klarna is set to price its long-awaited U.S. IPO later on Tuesday, setting the stage for a market debut closely watched as a bellwether for high-growth fintech listings.

Klarna is headlining a string of companies, from crypto to consumer, aiming to go public in New York this week, as rallying equity markets and blockbuster debuts have eased tariff uncertainty and reignited investor interest in IPOs.

The issue marks a milestone for the fintech, after a rapid ascent as a BNPL leader propelled its valuation to more than $45 billion in 2021.

The Sequoia Capital-backed company's valuation dropped to $6.7 billion in 2022, amid rising interest rates and higher inflation.

Klarna and some of its investors plan to sell 34.3 million shares in the IPO at between $35 and $37 apiece, aiming to raise up to $1.27 billion.

Should the IPO price at the top end of the marketed range, Klarna would fetch a valuation of nearly $14 billion.

An investor, who declined to be named publicly, told Reuters that the order book was 15 times oversubscribed on Monday.

"The scale of oversubscription shows just how eager investors are to get exposure to a market leader in BNPL," said Rudy Yang, senior analyst at PitchBook.

Klarna, which has been readying a New York listing for years, paused its plans in April due to choppy global markets after U.S. President Donald Trump announced sweeping tariffs on major trading partners.

Founded in 2005, Klarna remained profitable until its expansion into the U.S. in 2019, just ahead of the online shopping boom sparked by the COVID-19 pandemic.

While its user count and gross merchandise value continue to expand in double digits, profitability remains a challenge.

Losses widened to $52 million on revenue of $823 million for the quarter ended June 30, from $7 million on $682 million a year earlier.

"While the market is open again to fintech listings, companies will be judged quickly on their ability to balance growth with profitability in a tougher macro backdrop," Yang said.

The company also operates as a digital-first neobank. Peer Chime's CHYM.O shares popped 59% in its Nasdaq debut in June, although they trade below the issue price, as of last close.

However, analysts believe Klarna's brand power might help secure its footing among fintechs.

"The sector is highly competitive and rapidly evolving, and brand recognition, where Klarna remains strong, is often as critical as (the) business model," said Kat Liu, vice president at IPO research firm IPOX.

DEMAND UPTICK

Amid sticky inflation, labor market cracks and slowing income growth, U.S. consumer spending has held up.

Alternative payments services like Klarna, which ease the immediate financial burden by allowing shoppers to split purchases into smaller, interest-free installments over weeks or months, have witnessed stable demand.

For the 12 months ended June 30, Klarna earned 75% of its revenue from transaction and service-based fees - the majority of which come from merchants on its network - the lowest as a share of total revenue for the same period since 2022.

During the period, the share of interest income rose to 25%.

"Since Klarna's BNPL model depends on both transaction volume and repayment rates, lower spending reduces merchant fee capture while also raising the risk of credit losses," Liu said.

Goldman Sachs, J.P.Morgan, and Morgan Stanley are the joint book-running managers. Klarna will start trading on the New York Stock Exchange under the symbol "KLAR" on Wednesday.