Tuesday, 21 March 2023

Klarna closes major financing round during worst stock downturn in 50 years

5 min read

Klarna announced the closing of a new $800m financing at a $6.7bn post valuation. The financing attracted strong support from both existing and new investors and will primarily be used to expand Klarna's market position in the United States.

Sebastian Siemiatkowski, CEO of Klarna stated, "It's a testament to the strength of Klarna's business that, during the steepest drop in global stock markets in over fifty years, investors recognized our strong position and continued progress in revolutionizing the retail banking industry. Now more than ever businesses need a strong consumer base, a superior product, and a sustainable business model." 

The investment is of $800m in common equity and at a valuation 3x times higher than back in 2018, outperforming Klarna's public peers for the same time period. Klarna has not been immune to the significant downdrafts of fintech stock in public markets. The company's peers are down 80-90% vs peak valuations and consequently the adjustment in Klarna's valuation is on par with its public peers from its $45.6bn valuation in June 2021.

The fresh investment in Klarna occurred during possibly the worst set of circumstances to afflict stock markets since World War II: high inflation, rising interest rates, mounting fears of a recession, the after effects of the first global pandemic since 1918, strains on commerce caused by supply chain disruptions, rising gas prices, and, especially in Europe, the dislocations caused by the war in Ukraine.

Despite these challenges, Klarna received strong backing from its existing investors including Sequoia, the founders, Bestseller, Silver Lake, and Commonwealth Bank of Australia. More notably, several entities known for their long-term commitments made their first investments in Klarna. These include Mubadala Investment Company, the $284bn sovereign fund of the UAE, and Canada Pension Plan Investment Board (CPP Investments) which manages over C$539bn. Post the major closure of the round, Klarna now aspires to allow all of its more than 1000 smaller shareholders to participate on a pro-rata basis in a process that will continue for the coming few weeks.

Michael Moritz, Partner at Sequoia commented: "The shift in Klarna's valuation is entirely due to investors suddenly voting in the opposite manner to the way they voted for the past few years. The irony is that Klarna's business, its position in various markets and its popularity with consumers and merchants are all stronger than at any time since Sequoia first invested in 2010. Eventually, after investors emerge from their bunkers, the stocks of Klarna and other first-rate companies will receive the attention they deserve".

Klarna has made the most out of the favorable perspective the emerging fintech industry has received over recent years. Since 2018 Klarna's business has transformed into a global leader and innovator in the payments and retail banking industry, allowing it to create a strong solid foundation as more challenging times approach:

  • In the US Klarna has gone from nothing to becoming the market leader, with close to 30m users, 60% brand awareness, and 30 of the top 100 US retailers more than Affirm and Afterpay combined. Volumes more than tripled YoY from 2020-2021.
  • Klarna has launched 11 new markets during this time period among them FranceItalySpainCanada and Australia. Making it the number one choice for global brands across the world, covering over 20 markets.
  • Globally now is larger than Amex with 150m users worldwide, using Klarna 2 million times a day and app downloads in excess of 60m.
  • Volume has grown in the UK by close to 8x since 2018, reaching 18m consumers from just 4m in 2018 representing a 333% increase, with 22,000 retail partners. 
  • Our established European markets are making $1bn in gross profit. This is in parallel to putting $100m back into the pockets of consumers by cutting our fees over the last 12 months.

Sebastian Siemiatkowski, CEO of Klarna continued: "Klarna is the only fintech in the world that has been profitable for its first 14 years of existence. In 2017 Klarna recorded a 12% EBT margin. The last few years however we have made significant investments as we took the opportunity to transform Klarna into a global player. With the recent shift in investor sentiment we also now shift our focus and look forward to returning to a modus operandi of growth and profitability. The foundation for a global leader has been set." 

Ibrahim Ajami, Head of Ventures and Growth at Mubadala Investment Company said: "Klarna remains a driving force in revolutionizing the payments market. Consumers today demand - and deserve - more control and flexibility over their finances, and Klarna's offering, global reach and continued innovative approach demonstrates the value of their payment solution for customers everywhere. We are thrilled to be partnering with a generational company and look forward to supporting Sebastian and his team on this next stage of growth."

Re-disseminated by The Asian Banker

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