Fintech investors are piqued by Klarna's $14 billion valuation, sparking a hunt for potential deals in the financial services sector.

Klarna's Highly Anticipated IPO Set to Price Amid Fintech Boom

Klarna Group Plc, the Swedish buy now, pay later (BNPL) giant, is set to price its initial public offering (IPO) late Tuesday, marking a significant milestone in a busy year for the fintech sector. The offering includes 34.3 million shares, with more than 80% being sold by early backers.

The demand for Klarna's IPO is at least eight times the available shares, indicating a strong investor interest in the company. This high demand could re-accelerate fintech issuance and validate prospects for the BNPL industry.

In the latest quarter, Klarna's revenue grew 21% to $823 million. While this is lower than rival Affirm Holdings Inc.'s $876 million, Klarna claims to have a more diversified and sustainable revenue model compared to other BNPL competitors such as Capital One Financial Corp., American Express Co., PayPal Holdings Inc., and Affirm.

Klarna's average order value was $101 in the past year, whereas Affirm's was $276 in its most recent quarter. Affirm's loans are more often tied to bigger-ticket purchases and offer longer-term zero interest options with no late fees.

The success of Klarna's IPO could establish a critical benchmark for European fintech companies eyeing US listings. Klarna's implied market valuation is currently about a 50% discount to Affirm Holdings Inc., suggesting room for growth.

The investment banks supporting Klarna's IPO include Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America, Barclays, Citigroup, and Deutsche Bank. Goldman Sachs, JPMorgan Chase, and Morgan Stanley are leading the listing, acting as joint bookrunners and playing a key role in setting the share price during the IPO process.

However, the success of Klarna's IPO could be impacted by external factors such as the labor market and interest rates. If the labor market continues to deteriorate, demand for loans could fall for BNPL companies like Klarna. An interest-rate cut could lower funding costs and ease BNPL underwriting while supporting volume for Klarna.

Analyst Diksha Gera of Business Insider estimates Klarna's value to be between $12 billion and $16 billion. If the IPO prices at the top end of its marketing range or possibly higher, this would rank as the sector's biggest since Chime Financial Inc.'s upsized offering.

Klarna has more than doubled its monthly active users in August from the prior year, leading among BNPL firms. The success of Klarna's IPO could be a testament to the company's strong growth and its potential to disrupt the traditional financial industry.

Chime shares, which debuted earlier in the year, have seen early enthusiasm wane, leaving the shares below the offering price. The pricing of Klarna's IPO could provide insights into the current market sentiment towards fintech companies and the BNPL industry.

As Klarna prepares for its IPO, the spotlight is on the company to deliver strong financial performance and maintain its competitive edge in the rapidly evolving BNPL market.

Fintech investors are piqued by Klarna's $14 billion valuation, sparking a hunt for potential deals in the financial services sector.