As markets tremble due to Trump's tariffs, Klarna delays its US IPO

Amid the market turmoil, Klarna, a buy-now-pay-later lender, has delayed its US IPO

According to Kaylie Pferten, it's not alone.

The newest is Klarna, a buy-now-pay-later (BNPL) lender and online payments provider. "casualty" in the initial public offering (IPO) market after the tariff announcement, according to Ben Dummett and Joe Wallace of The Wall Street Journal. It has made the decision to delay its flotation. It was scheduled to start a marketing campaign for its listing on the New York Stock Exchange, where it has been aiming for a £15 billion valuation, which is more than twice the £6.7 billion it was valued at in 2022. The market value of rival Affirms fell 15% on Friday, April 4. At £12 billion this year, it has nearly halved.

According to Pymnts, Klarna may have had "second thoughts" about breaking into the stock market as a result of Affirm's and its competitors' poor performance. But some "larger concerns" are also present. Donald Trump's trade war may cause consumers to "throttle" their overall spending. This would be especially detrimental to Klarna, which depends on short-term consumer loans for its revenue. Klarna acknowledged in recent pre-flotation filings that operating losses had "been widening at the company" in contrast to the "prolonged history of operating profits" that investors typically look for in bear markets.

Is Klarna a responsible lender?

According to the data, Klarna's capacity for prudent loan decisions may not be as strong as it first appears, Stephen Gandel of Breakingviews adds. Although it has set aside £495 million to cover potential unpaid consumer debt, its headline loan-loss rate is only 0.47%, which is significantly lower than the 52% that banks have been forced to write off on credit-card loans. An alternative metric shows that Klarnas' loan losses, at 55% of outstanding balances, are "slightly worse" than the industry average. Investors may be excused for assigning Klarnas a "more bank-like valuation" rather than considering it to be "a high-growth company" because, although Klarnas customers do pay off their installment loans more quickly, it is unclear that the company's business model differs significantly from banks'.

According to Theodora Lee Joseph of Finimize, Sweden's Klarna is the "new kid on the block" in terms of BNPL in the US. This can be advantageous because the US market is far less developed than the European one; only 9.8% of consumers use BNPL, compared to 20% in the UK and 33% in Germany. However, there is more fierce competition in America, where PayPal and Affirm are also "vying for market share." The fact that many US companies provide BNPL "as a free add-on" presents another difficulty. Klarna "may have to give up margin in order to remain competitive."

However, according to the Financial Times, Klarna is not the only business that has chosen to postpone a US listing for the time being. They have also included the Israeli trading platform eToro, the virtual physical therapy company Hinge Health, and the ticketing company StubHub. At the beginning of the year, it was anticipated that the IPO market "would boom under an ostensibly pro-business Republican administration." This represents a "stark turnaround."