Investors recently learned that Klarna, Sweden's buy-now-pay-later (BNPL) company, closed on another round of funding that valued the unicorn at nearly $50 billion, according to Reuters.
The BNPL firm has done a tremendous job of increasing its reach, which includes a rapid expansion into the U.S. market. The competition in the BNPL space is heating up, and Klarna faces stiff competition from competitors, new and old alike. With the company expected to go public soon, here's what you should know.
Klarna, Europe's BNPL company, making a big splash
Klarna is a Swedish bank that started in 2005 with the goal of making online shopping safer and simpler. The company has evolved since then and provides flexible payment solutions for customers, including pay after delivery options and installment plans -- what we now know as buy now, pay later.
The company serves 90 million active customers across the globe and is partnered with 250,000 retailers in 17 different countries. Klarna is known for its pay-in-30 option, which allows customers to pay 30 days after the delivery of an item so they can try it out and decide if they want to return the item.
However, the company's goal isn't to be at the checkout of every website like PayPal. Instead, it wants to "be right at the center of payments, shopping, and banking" according to David Sykes, Head of Klarna U.S. To accomplish this, the company is focused on its Klarna app, which allows customers to track packages, browse products from other retailers, and even earn interest on deposits with the company.
Klarna has been quickly expanding its reach, with a focus on the U.S. market in particular. The company touts 17 million U.S. customers through the end of the first quarter this year, doubling the amount it had the year before. Not only that, but the company is now partnered with one-quarter of the top 100 largest retailers in the U.S.
Competition in the BNPL space is heating up
Klarna finds direct competition from other BNPL companies like Affirm Holdings and Afterpay. Affirm went public in January, and the U.S. BNPL company sported a market cap around $16 billion at Friday's prices. Afterpay, its Australian counterpart, had a market cap around $21 billion.
These BNPL companies are facing competition from older companies that aren't too keen on the idea of losing market share. PayPal, one of the earliest internet payment companies, introduced its Pay in Four product last summer, which allows customers to make four interest-free payments over six weeks.
Visa is another company looking to capitalize on the BNPL trend. The company wants to make installment payment options available to their customers who already have approved lines of credit. Given the threats to its business from Klarna, Affirm, and Afterpay, it's no surprise to see legacy companies looking to adapt.
A valuation that has quadrupled in nine months
Klarna's recent round of funding included the likes of SoftBank, and it gave the fintech a valuation between $40 billion to $50 billion. This valuation would make Klarna one of Europe's most valuable start-ups, Sweden's largest financial company, and a larger entity than some big banks in Europe, including Deutsche Bank and Credit Suisse Group.
The company has seen its valuation skyrocket in its two previous funding rounds. In September, Klarna's valuation was pegged at $11 billion, and in a fundraising round in March, its valuation jumped to $31 billion. Now with a valuation of nearly $50 billion, investors eagerly wait on the sidelines for what could be one of the year's bigger initial public offerings (IPOs).
When will its IPO be?
Sources told Reuters that this most recent round of funding will be Klarna's last before going public. The company has flirted with going public in London, although the regulatory issues involved could push the company to list in New York instead.
Bankers expect that the company will complete an IPO or a merger with a special purpose acquisition company (SPAC), although CEO Sebastian Siemiatkowski said that the SPAC path was highly unlikely. Some speculate that the company may do a direct listing instead. In a traditional IPO, a company will hire underwriters, set an IPO price, and determine how much stock to sell to raise money. A direct listing is when the company lists its shares directly on the public markets without the use of an underwriter and without raising new capital. Since Klarna already raised funds through multiple fundraising rounds, a direct listing may be the more favorable option.
Either way, investors will eagerly await the public debut of Klarna, which could be completed as early as this year, although it could get pushed to 2022. The BNPL space is an interesting space with lots of competition, and it will be interesting to see how things unfold in the coming years.