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Like a shape-shifting Norse god, Swedish fintech Klarna can appear in many guises. A key challenge for investors ahead of its highly-anticipated IPO will be to work out which is its true form: is it an AI-focused venture capital-backed tech group or a 20-year-old bank with an investment-grade credit rating; a payments processor looking to rival Visa and Mastercard or a subprime consumer lender?
To see why these questions matter, compare the valuation of a successful retail bank with a big payments technology specialist. Bank of America is unusually valuable at 12 times its forward earnings, with most European lenders trading far lower; Visa and Mastercard trade at more than twice that level.
News that Klarna is seeking buyers for a pipeline of its future buy-now-pay-later loans is a reminder that, for now at least, its underlying business looks more like a financial firm than a tech group.
Any transaction is likely to look similar to the deal it struck with US hedge fund Elliott last October: rather than offloading an existing loanbook, Klarna’s partner will agree to immediately buy new short-term loans as they are originated through a forward-flow agreement. The purchaser profits by buying the interest-free loans at a small discount, while Klarna still makes a small profit through the fees it receives from retailers on every transaction.
This sort of forward-flow agreement is sensible from Klarna’s perspective: it should allow it to speed up growth in the US, its fastest-growing market, without adding much strain to its balance sheet.
Rivals have pursued similar plans. Affirm struck a $4bn forward-flow agreement with private equity group Sixth Street last month, while SoFi in October signed a $2bn deal with Fortress Investment Group.
Yet while Klarna has more diversification than a pure platform lender, with products like a physical credit card and a PayPal wallet-esque “Klarna Balance”, its focus on forward-flow deals suggests that the main driver of growth is still a fairly straightforward lending business.
One way to reflect its business mix is to put the company’s revenues on middle-of-the-pack multiples, similar to those Affirm and SoFi trade at. While that would make the purported $15-$20bn valuation range for its IPO look reasonable, it is still a long way off its 2021 valuation peak of $46bn.
Loki, the original Scandinavian shape-shifter, ended up being bound to a rock in a cave. Klarna should be able to avoid the millstone of a traditional banking sector valuation, but it will struggle to ascend back to tech sector Valhalla.
nicholas.megaw@ft.com
