It’s the first day of Disrupt, so things are a bit busy here at TechCrunch. In honor of that fact, entries from The Exchange concerning NFT volume viz recent marketplace valuations and how an accelerating pace of change helps startups by exposing more market voids will have to wait.
But we do have time this morning for a little incredulity, so let’s indulge.
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CNBC reported today that Klarna CEO Sebastian Siemiatkowski is not enthused about present-day market conditions, and thus isn’t in a hurry to take his company public.
There’s some merit to the idea; after all, Klarna has shown a strong ability to raise huge sums of capital while private.
Why not just keep at it? In short, because the company has to either go public or sell itself to a larger company at some point. Given that we’ve already seen PayPal and Square cut checks to buy BNPL volume, the list of potential acquirers for Klarna is not as long as you might think. The company, flush with billions in private-market funding, will need to go public. It’s a simple question of when.
Which makes the following all the more surprising. Via CNBC:
“The volatility in the market right now makes me nervous to IPO to be honest,” Siemiatkowski told CNBC’s Karen Tso at the London Tech Week conference on Monday. “I think it would be nice to IPO when it’s a little bit more sound. And right now it doesn’t feel really sound out there.”
Huh. Color us confused.
The public market for BNPL companies actually feels pretty damn strong at the moment.
Affirm, for example, is a BNPL company publicly listed in the United States. In Q2 2021 (Q4 fiscal 2021 for the company), Affirm reported gross merchandise volume of $2.5 billion and revenues of $261.8 million. Those figures were up 106% and 71%, respectively. Affirm also posted a net loss of $128.2 million in the quarter and $430.9 million in red ink during its most recent fiscal year (the 12 months ending June 30, 2021).
And Affirm is worth some $29 billion, per Yahoo Finance data this morning. That’s a revenue run-rate multiple of 28x for a BNPL company. That’s some nuance to the figure, given that Affirm has a long-running deal with Peloton and is working with Amazon. The latter bit of news was accretive for its value.
Still, public investors are valuing Affirm like a software company, which we’d reckon is precisely the sort of market that Klarna would want to float itself onto.
Don’t forget that Klarna is doing massive numbers. The company’s gross merchandise volume was not $2.5 billion, as Affirm posted in the second calendar quarter of this year. No, Klarna managed $20 billion in GMV during Q2 2021. And the company said that its operating profit was scaling well compared to 2020 (“Net Operating Income was USD 766m compared to USD 466m in 2020” in H1 of both years.)
Klarna is worth $45.6 billion, mind, far less than double where Affirm is currently valued by public investors. And Klarna is doing 8x the GMV, using the June 30, 2021, quarter as our reference point. Even at a fraction of Affirm’s GMV multiple, Klarna could defend its private-market valuation.
Here’s the math:
- Affirm annualized Q2 GMV run rate: $10.0 billion.
- Affirm GMV run-rate multiple: 2.93x (public market).
- Klarna annualized Q2 GMV run rate: $80 billion.
- Klarna GMV run-rate multiple: 0.57x (private market).
Klarna doesn’t like these market conditions? On paper that feels backward. Indeed, it looks more like Klarna’s private market investors dramatically undervalued the company in its most recent round, even taking into account the Affirm-Amazon deal and the fact that Klarna’s Q2 2021 GMV growth (67%) was lower than Affirm’s (106%).
Hell, at one-third of Affirm’s present-day GMV run-rate multiple, Klarna is worth around $80 billion. That’s much more than the sub-$50 billion valuation the company secured earlier this year.
So, what’s driving Klarna to be afraid of going public? Oddly enough, it may be Deliveroo. In the same CNBC interview, Klarna’s CEO said the following (emphasis: TechCrunch):
However, Siemiatkowski added he’s not sure institutional investors in London have a good enough understanding of high-growth tech companies like his. He gave the example of U.K. food delivery firm Deliveroo’s disastrous IPO, in which the company’s shares fell as much as 30% on the first day of trading.
“I don’t think what happened to Deliveroo is entirely fair,” Klarna’s founder said. “I think there were some aspects of that where it was misunderstood, and I think maybe it would have fared better in the U.S. as a consequence of that.”
To which we merely say, cool, so go public in the United States. Want an example of a Swedish tech company listing in the U.S.? Telefonaktiebolaget LM Ericsson — “ERIC” on the Nasdaq — is one. It’s worth tens of billions of dollars.
It wouldn’t even be weird for Klarna to list in the United States, as the company’s expansion in the U.S. market is key to its growth; you can tell that by merely reading its most recent financial report, which devotes its first post-results section to its “U.S. focus.”
London is not the only place to list, and Affirm indicates that the U.S. markets are more than attractive for BNPL companies today.
Our only real guess is that Klarna simply doesn’t want to go public and blaming market chop — stocks did fall yesterday, oh no — is an easy way to dodge the task.
That means that Klarna is content to keep doubling down on the unicorn gambit, the wager that today’s historically strong valuations for technology companies broadly will persist, rewarding firms that stay private longer with a valuation they like when they do choose to list.
The risk inherent to the gamble is that valuations could dip. In the case of Klarna, Affirm could hit a bump, drop sharply and reprice Klarna before it can even get a public filing together. That might make going public harder, but only if Klarna waits.
Market chop. Pish. Stocks are still near record highs. Investors are content to fund even unprofitable companies with strong growth. Klarna just doesn’t want to go public. I wish folks would simply say that their private investors would like to buy another round of upside for themselves rather than allow public-market investors to get a crack at valuation creation through earlier listings than whatever this claptrap is.
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