Swedish Payments Firm Klarna May Opt for Direct Listing
Klarna, the Swedish payments firm, is considering a direct listing on the stock market without raising money by selling new shares. The company completed a $650 million funding round in September 2021 from a group of investors led by Silver Lake that valued it at $11 billion [1]. According to sources, Klarna is now raising over $500 million [2]. The move to go public comes as Klarna seeks to expand its business globally and compete with other payment giants like PayPal and Square.
The Rise of Klarna
Founded in 2005, Klarna has become one of the most successful fintech companies in Europe. The company’s “buy now, pay later” service has gained popularity among consumers who want to make purchases without paying upfront. Klarna’s service allows customers to pay for their purchases in installments, with no interest or fees. The company has partnerships with over 250,000 merchants worldwide, including H&M, Sephora, and Adidas [1].
Klarna’s success has not gone unnoticed by investors. The company has raised over $3.7 billion in funding to date and is valued at $46 billion [1]. Klarna’s revenue grew by 40% in 2020, reaching $1.2 billion [2]. The company’s growth shows no signs of slowing down, with plans to expand into new markets and launch new products.
The Benefits of Direct Listing
A direct listing is an alternative to an initial public offering (IPO) where a company lists its shares on a stock exchange without raising any new capital. Instead, existing shareholders can sell their shares directly to the public. Direct listings have become increasingly popular among tech companies in recent years, with companies like Spotify and Slack opting for this method [1].
One of the benefits of a direct listing is that it allows companies to avoid the high fees associated with an IPO. Companies can also avoid diluting their shares by not issuing new ones. Direct listings also provide more transparency for investors, as they can see the company’s financials before investing [1].
The Risks of Direct Listing
Direct listings do come with risks. One of the main risks is that there is no guarantee of demand for the shares. Unlike an IPO, where investment banks underwrite the shares, in a direct listing, the market determines the price of the shares. This can lead to volatility in the stock price, as seen with Spotify’s direct listing in 2018 [1].
Another risk is that companies may not receive the same level of publicity as they would with an IPO. IPOs are often accompanied by media coverage and investor roadshows, which can help generate interest in the company. Direct listings do not have the same level of fanfare, and companies may struggle to attract investors [1].
Conclusion
Klarna’s move to go public through a direct listing is a significant step for the company. The move will provide more transparency for investors and allow Klarna to expand its business globally. However, direct listings come with risks, and Klarna will need to ensure that there is demand for its shares. With its strong financials and growing customer base, Klarna is well-positioned to succeed in the public markets.
