Klarna's IPO faces test in market roiled by Trump's tariffs

Gabby Jones/Bloomberg

Klarna faces turbulence as it prepares to go public, though much of it is not of its own doing.

The Swedish payment company on Friday released its prospectus filing with the Securities and Exchange Commission. Klarna Group's initial public offering, which is expected in the next few weeks on the New York Stock Exchange, comes as the stock market has given up most of its gains since Donald Trump's inauguration.

More economists are predicting higher inflation and increasing the odds of a recession, largely due to the expected trade war that's accompanying the tariffs that Trump has placed on Canada, China, Mexico and other countries, and the tendency of these tariffs to change, often with little or no notice.

While Klarna's listing in the U.S. has long been viewed as a litmus test for the recovery of the payment technology market following the post-pandemic slump of 2022 and 2023, it's now shaping up as a potential test of the overall IPO market.

"In my view it's a terrible time to try an IPO," said Adrian Mendoza, general partner and founder of Mendoza Ventures, an investment firm that specializes in fintech. "The back and forth on tariffs has created a volatility in the market, and I see more retail investors pull back on the fears of a recession."

What Klarna's up against

The tariff-related storm has already cooled IPOs, which were expected to grow in 2025. Turo, a car rental startup, and Cerabras, an artificial intelligence chipmaker, have pulled plans to go public, citing market volatility.

IPOs increased in 2024, with 150 stock listings that raised about $30 billion, according to Renaissance Capital. That was up from 108 IPOs totaling $19.4 billion in 2023, but below the historical average of 254, according to Renaissance, which attributed the slower pace to delayed reductions in interest rate and broader market volatility.

Among financial institutions, banks such as Wells Fargo are connecting with clients with exposure to supply chains to discuss how to manage inflation due to the tariffs. And 92% of financial services and payment professionals say inflation is somewhat likely, very likely or certain to occur because of Trump's tariffs, according to research from Arizent, American Banker's publisher.

"With Trump's fusillade of destructive tariffs, retaliatory tariffs, growing market uncertainty and consumer sentiment falling, the IPO environment is far from ideal. Klarna's growing. It's profitable, but only just," Eric Grover, a principal at Intrepid Ventures, told American Banker.

There are new major economic policy changes from the presidential administration on a daily basis and it's hard to predict what the future will hold, Ben Danner, a senior analyst at Javelin Strategy & Research, said. "If some of the major tariff plans continue into the long term, we could see costs passed on to the consumer and a subsequent reduction in consumer expenditures as wallets tighten."

But there could be a boost for buy now, pay later lending if the economic struggles due to political instability persist.

"Consumers tend to switch over into credit financing when times get tough, so perhaps we might see some short-term gains for BNPL lenders," Danner said.

JPMorgan, Walmart provide tailwinds

Klarna has plenty going for it as it prepares its IPO.

The company, which is based in Sweden, last week reported a net profit of $21 million in 2024, compared to a loss of $244 million the prior year. Klarna has not commented on its earnings nor on its IPO, citing a quiet period.

While Klarna has a banking license in the EU and offers a full range of payments and financial services there, it's best known in the U.S. as a BNPL lender — and has made a series of high-profile distribution partnerships in recent months ahead of its IPO.

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The fintech this week said it would partner with consumer finance app OnePay to offer installment loans at Walmart in the U.S.

Ribbit Capital, Walmart's partner in the retailer's financial services venture, also financially backs OnePay.

The exclusive Walmart/Klarna BNPL partnership potentially adds millions of consumers to Klarna's addressable market. And it enables Klarna to score a win against rival Affirm, which has offered BNPL lending to Walmart consumers.

The Walmart/Klarna partnership additionally gives OnePay an option to take a stake in Klarna, according to CNBC, noting Klarna's prospectus included reference to an unnamed "commercial agreement with a global partner."

"OnePay choosing Klarna as their exclusive installment loans partner at Walmart in the U.S. is a huge vote of confidence as we pursue our goal of being available everywhere for everything," said Sebastian Siemiatkowski, co-founder and CEO of Klarna, in a release, which did not disclose the financial terms of the Walmart deal.

The Walmart partnership follows a February deal between Klarna and JPMorgan Chase to offer BNPL to the bank's merchant network. That put Klarna's installment options at the point of sale for more than 900,000 businesses through the bank's JPMorgan Payments Commerce Solutions Platform.

Other recent Klarna distribution deals include Adyen, Apple, Staples, Worldpay and RiteAid.

The partnerships are the kind of distribution Klarna must build network mass, according to Grover.

"But BNPL is competitive. Klarna can only command rich merchant discount fees if it's delivering incremental sales," Grover said. "If the economy goes into a recession, higher risk consumer credit won't perform well."

Klarna's IPO is a significant milestone for the broader BNPL industry, reaffirming the market's long-term potential despite current economic volatility, Andreas Mjelde, CEO and co-founder of Two, a payments fintech, told American Banker.

"Klarna's IPO will likely set a precedent for further investment and innovation in the space, especially in the B2B sector, where the demand for flexible, embedded credit solutions has never been stronger," Mjelde said.

In addition to returning to profitability, Klarna has reduced headcount by more than 30% over the past two years, currently employing about 4,000 people. Klarna's prospectus reported gross merchandise volume of $105 billion in 2024, up from $53 billion in 2020 and $6 billion in 2015.

Klarna's recent strategy has also included aggressively investing in new forms of artificial intelligence, contending that 96% of its employees use generative AI.

Bloomberg reported Klarna hopes to raise about $1 billion with a valuation of about $15 billion. Trading data that Rainmaker Securities shared with American Banker earlier this month projected Klarna's valuation at about $15.8 billion.

"Klarna is in a good position, but in my view they should wait until the public markets stabilize, but that may be wishful thinking on my part. Later this year would be a better time to IPO," Mendoza told American Banker.