My Thoughts on Klarna’s F-1 (Not All Are Correct) – Part I
I’m sure some of my takes are off, and I’d love to hear what others think. These are purely my own opinions.
TL;DR:
Klarna’s core financial services business still isn’t profitable, and scaling it—especially in today’s macro climate—looks like an uphill battle. Sorry Klarna, but the U.S. probably isn’t going to the silver bullet.
Filing an IPO in this environment?
Kudos to any company brave enough to file for an IPO right now—especially when U.S. consumer confidence is at a 12-year low. Klarna’s success is closely tied to consumer optimism, and the F-1 really leans into educating investors on what drives their growth: average order value (AOV), purchase frequency, merchant fees, marketing services, and a sprinkle of “fair” fees.
The profitability illusion
Klarna reports a $21M net profit in 2024, a huge turnaround from a $244M loss in 2023 and a jaw-dropping $1.04B loss in 2022. But here’s the twist: the 2024 profit came largely from a $171M “other income” line item—specifically, the one-time divestment of Klarna Checkout (KCO). Blink and you’ll miss it—this footnote is buried at the bottom of page 179 of the 430-page filing.
Without that sale, Klarna posted a $121M operating loss. That said, the improvement in operating losses over the last few years is impressive. It shows Klarna’s intention to course-correct. Still, it doesn’t feel like a business that’s easy to grow.
The math doesn’t math (yet)
Klarna says its funding cost is ~3% while its take rate is ~2.7%. If I’m reading this right, that means the core business of collecting deposits and lending out money isn’t profitable yet. Maybe that’s why Klarna pushed into the U.S. starting in 2019—hoping that higher payment fees in a less-regulated market might improve margins.
They also earn from interest income and penalties, but the language in the F-1 is… creative. Interest-bearing loans are called “Fair Financing” and late fees are “Reminder Fees.” I’m not sure how regulators will feel about that. That said, with an average loan balance of $87 and a loan term of 40 days, the income here doesn’t seem very material.
So what else drives revenue?
Value-added services like marketing and advertising. Klarna pitches itself as a growth partner to merchants by helping them acquire and retain customers. Throughout the filing, the company reminds us (15 times, by my count) that it has 93 million active Klarna consumers.
Here’s how they define that: a consumer who has made a purchase, payment, or logged into the Klarna app in the last 12 months. That’s… a pretty broad definition. A more useful metric might be their monthly active users (MAUs)—they report 32 million of those (mentioned twice in the document and defined as active consumers that log into the app). But where are these users located?
Klarna notes that 80% of Sweden’s population are active users—which equates to ~5M people out of the 10M population. So… 5M of the 32M MAUs are in Sweden. That’s likely why 2 of the 4 case studies Klarna highlights are Swedish merchants.
Of the other two merchants, one is a global cosmetics brand with great product-market fit (Gen Z, female) and the other is a travel brand that Klarna seemed to have dumped a ton of marketing resources and saw a 5% YoY basket uplift. But let’s not forget: we’ve also just been through a period of high inflation. We probably need to understand a bit more of their calculation methods here.
Some fluff, some philosophy?
An IPO is a strategic and critical PR and brand exercise as it is a capital-raising one. And you can definitely get a sense of a company’s personality from how it writes. One sentence early in the F-1 gave me pause:
“Trust is rooted in the profound yet daring belief that someone else will place your needs above their own.”
That’s… poetic. But this is a prospectus—a financial document, not a TED Talk. Listing on the NYSE is capitalism in action. Shouldn’t trust be transparency and aligned incentives, not self-sacrifice? If the vision is really to put others ahead of themselves, I’m not sure how that will sit with investors.