Klarna surged higher in its US debt yesterday after the fintech raised $1.4 billion at a $15 billion valuation to accelerate the growth of its ‘buy now, pay later’ offering, as well as explore additional opportunities in digital banking.
The stock closed yesterday’s session at $45 after listing with an offer price of $40.
While the first day’s trading was a major success for investors who participated in the IPO round, early venture capital investors realised substantial gains, with Sequoia Capital’s stake reportedly now worth around $3.5 billion.
However, there could be further gains to come for Klarna investors in the coming years as the company uses the IPO as a platform to propel growth.
Analysts at Morningstar went into the IPO with a fair value target of $45 per share, where it coincidentally ended yesterday’s first day of trading.
Morningstar has a fair value target of $59.10 in their bull scenario and $31.30 in the bear case.
“Growth is what it is all about for Klarna. While its platform is currently just breaking even, starting to eke out a marginal operating profit, the company is poised for a big shift,” explained Morningstar Equity Analyst, Niklas Kammer.
“As its platform scales and its underwriting models are enriched with more shopper behaviour data, we anticipate profitability to improve. These new payment service provider agreements will enable Klarna to upsell its conversion and customer acquisition funnel tools to merchants, propelling the BNPL provider to reach more merchants, serving more customers, and growing more profitable.”
Kammer continued to explain that future growth will be achieved through investments in marketing and client experience, noting that Morningstar believes EPS will grow at a 30% annual rate.
“While Klarna operates as a platform, its success hinges on investments in customer-facing staff, marketing to sustain and grow its brand, sales teams to capitalise on PSP-driven expansion at checkout, and ongoing technology and product development to enhance its offerings for both merchants and customers.
“These investments are critical to unlocking Klarna’s growth potential. However, the company’s impressive top-line growth more than offsets these expenditures. We project Klarna to achieve a 30% operating profit margin by 2034, with earnings per share increasing by 30% annually starting from 2025, over our explicit forecast horizon. We believe Klarna will turn itself into a profitable staple among FinTech’s globally.”