Klarna Targets $14 Billion IPO Valuation: Can It Outpace Big Banks and Turn a Profit?
Swedish fintech giant Klarna is making waves with its long-awaited U.S. initial public offering (IPO), aiming for a $14 billion valuation as it challenges traditional banks in the buy now, pay later (BNPL) space. Announced on September 2, 2025, the IPO seeks to raise up to $1.27 billion by selling 34.3 million shares at $35–$37 each, with trading set to begin on the New York Stock Exchange under the ticker “KLAR.” However, concerns about profitability and regulatory risks loom large, raising questions about whether Klarna can sustain its ambitious growth in a competitive and volatile market. Here’s a deep dive into Klarna’s IPO, its battle against big banks, and its profit potential, with insights tailored for U.S. audiences.
Klarna’s IPO and Battle with Big Banks
The IPO Plan
Klarna’s IPO, led by Goldman Sachs, J.P. Morgan, and Morgan Stanley, involves 5.56 million new shares from the company and 28.8 million from existing shareholders, including Sequoia Capital and Heartland A/S. The $14 billion valuation marks a significant rebound from its $6.7 billion low in July 2022, though it falls short of its 2021 peak of $46.5 billion. The company aims to capitalize on renewed investor confidence in tech IPOs, following successful debuts like Figma and Circle, with U.S. IPOs averaging a 36% first-day share price rise in 2025.
Klarna’s push into the U.S., its fastest-growing market with over 37 million active users, highlights its strategy to disrupt traditional banking. By offering interest-free installment loans, debit cards, and deposit accounts, Klarna appeals to younger, credit-averse consumers, particularly Gen Z and Millennials, who drive 80% of its 111 million global active users. Partnerships with major retailers like Zara, H&M, Sephora, and Nike bolster its ecosystem, with 790,000 merchants across 26 countries as of June 30, 2025.
Challenging Big Banks
Klarna positions itself as a nimble alternative to banks like JPMorgan Chase, Bank of America, and Wells Fargo, which dominate U.S. consumer lending with over $1 trillion in outstanding loans. Its BNPL model, which splits purchases into smaller, interest-free payments, contrasts with traditional credit cards’ high interest rates (averaging 21.5% in 2025, per the Federal Reserve). Klarna’s $14 billion in consumer deposits funds 95% of its lending, giving it a cost advantage over banks reliant on wholesale funding or asset-backed financing, as noted in its IPO filing.
The company is also expanding into banking services, leveraging its European banking license to offer deposit accounts and financial management tools. Its advertising business, which grew from $13 million in 2020 to $184 million in the last 12 months ending June 2025, targets a $570 billion global digital advertising market, directly challenging banks’ fee-based revenue streams. Klarna’s AI-driven efficiencies, such as automating 62% of customer inquiries, further differentiate it from traditional banks’ slower, costlier operations.
Profitability Challenges and Risks
Financial Performance
Klarna’s financials show progress but raise red flags. In 2024, the company reported a 24% revenue surge to $2.81 billion from $2.28 billion in 2023, driven by a 14% increase in gross merchandise volume (GMV) to $105 billion and a take rate rise from 2.3% to 2.7%. It achieved a modest net profit of $21 million in 2024, its first annual profit after a $244 million loss in 2023, fueled by cost-cutting, including reducing staff from 5,527 to 3,422 and divesting non-core businesses. AI-driven automation saved $40 million annually, with AI underwriting improving loan approval rates and reducing risk.
However, profitability remains fragile. Klarna’s core BNPL business is unprofitable when factoring in credit losses and stock-based compensation, as noted by Mostly Metrics. Rising loan defaults, up in 2024 due to high inflation and tighter credit conditions, have eaten into margins. The company’s reliance on late fees and financing charges for revenue growth—key drivers of its take rate increase—raises concerns about over-earning, potentially inviting regulatory scrutiny.
Risks to Profitability
- Regulatory Scrutiny: The Swedish Consumer Agency is investigating Klarna’s compliance with marketing laws, and the U.S. Consumer Financial Protection Bureau’s 2024 interpretive rule classifies BNPL as credit, increasing oversight. Regulatory risks could lead to fines or restrictions, impacting profitability.
- Credit Risk in High-Inflation Environment: With U.S. inflation at 3.2% in mid-2025, potential credit losses and limited credit profile tracking threaten consumer resilience, as noted by Reuters. This could erode Klarna’s slim margins.
- Competition: Klarna faces stiff competition from U.S. rivals like Affirm ($15 billion market cap) and Block’s Afterpay, as well as banks like JPMorgan and Citibank entering BNPL. Amazon and Walmart’s adoption of BNPL further intensifies the race.
- Deposit Costs: While Klarna funds loans through $14 billion in consumer deposits, costs surged from $63 million in 2022 to $343 million in 2024, shrinking its funding advantage over debt-funded rivals like Affirm.
Public and Expert Reactions
The IPO announcement has generated buzz on X, with U.S. investors optimistic but cautious. One user posted, “Klarna’s $14B valuation is bold, but can it stay profitable with banks and regulators circling?” Another wrote, “BNPL is the future, but Klarna’s got to prove it can scale without crashing.” Analysts are split. PitchBook’s Nalin Patel told Sifted, “Klarna’s profitability and AI efficiencies make it a strong contender, but its valuation is aggressive compared to Affirm’s $4 billion.” Breakingviews noted that Klarna’s 7x book value multiple, based on $2.1 billion in equity, seems high compared to richly valued banks like Nu (8x) and Nordnet (7x), suggesting investors must view Klarna as a tech platform, not a lender, to justify the price.
Impact on U.S. Audiences
For American consumers, Klarna’s IPO signals the growing mainstream appeal of BNPL, with 9% of U.S. adults using such services, per the Federal Reserve Bank of Boston. Its success could lower reliance on high-interest credit cards, saving consumers billions in interest annually. However, rising defaults or regulatory crackdowns could limit access or increase costs for users.
Investors see Klarna as a high-growth tech play, with its $14 billion valuation dwarfing Affirm’s but trailing Stripe ($91.5 billion) and Chime ($25 billion). A successful IPO could boost U.S. fintech stocks, but a tepid debut may signal caution for the sector, as noted by Reuters. Economically, Klarna’s U.S. expansion, including partnerships with retailers like Walmart, could create jobs and streamline e-commerce, a $1.1 trillion U.S. market. Politically, the IPO tests the Biden administration’s stance on fintech regulation, potentially shaping rules for BNPL ahead of the 2026 midterms.
Conclusion and Future Outlook
Klarna’s $14 billion IPO is a bold bet to disrupt big banks, leveraging its BNPL model, AI efficiencies, and expanding financial services. Its $21 million profit in 2024 shows promise, but fragile margins, rising defaults, and regulatory risks pose challenges. For U.S. audiences, the IPO could reshape consumer finance, boost fintech investment, and influence regulatory debates. As Klarna prepares to list on September 9, 2025, its ability to sustain profitability while navigating competition and scrutiny will determine whether it can truly rival banking giants. The outcome will be a bellwether for the global fintech sector.