Should I Invest In Klarna – A Fintech Disrupter?


Saturday, 7.19pm

Sheffield, U.K.

The stock market is a giant distraction from the business of investing. – John C. Bogle

An opportunity has come up to buy into the Swedish financial technology firm Klarna in an offering of secondary shares on the investing platform Crowdcube. This looked interesting but I also realised that I had no idea how to value this kind of business. So I did some reading and came up with a canvas to get started. Does this help?

Let’s look at the past, present and future of the business, starting with the numbers.

The business is priced roughly at at ¬£33bn ($44bn), a 5% discount to the last round of fundraising in June 2021. Its revenue is around $1bn but it’s making a loss as it grows quickly and invests in its platform. It has close to 90 million users of which around 18 million are active. The value of transactions it processes is on the order of $50 bn.

So what does it do? The product is a buy now pay later service – effectively providing credit to consumers. Its customer base is made up of young people without a credit history who want the ability to delay payments but can’t access traditional credit arrangements.

Looking at the ratios, Klarna is valued at around 30 times revenue. It takes around 2% of its transaction values (including fees from merchants) and makes around $55 per active user, $11 if you count all the users. Although the valuation is high the company is a minnow compared to Paypal, the dominant player here, with a 66% market share valued at $360bn.

There are three co-founders and they hold a little over 18% in the business so have skin in the game.

The company’s growth strategy is to expand into more companies globally and recruit more online stores that use its platform.

One of the most important questions is whether the company has a moat – what are the barriers to entry into this market? I’m not sure what those are other than the ability to raise capital and manage the risk of customers with little or no credit.

The sector is facing headwinds. The product does have inbuilt problems – it’s the loan shark section of the market after all. How do you protect vulnerable customers from racking up debt they can never pay back? Through regulation of course, and the threat of regulation seems to have pushed the sector around 25% lower this year. That makes the previous raise look rather inflated – was it too high a valuation given the prospects for the sector?

It’s quite hard to make a decision on these kinds of startups based on the numbers – they’re growing too fast and don’t have enough history or information for us to make a judgment based on expectations of future cashflows. You have to look at a wider set of qualitative factors such as the ones set out in the canvas.

From a decision making point of view the question for me is do I buy now or wait? If I wait and Klarna lists and becomes large enough it will enter my portfolio through index trackers. Do I want to jump the gun and get in earlier now, because of the potential gains on offer?

On balance I think I’ll wait to see what regulation does to the sector. What would you do?


Karthik Suresh

p.s. This post is not investment advice. Make up your own mind

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