Afterpay share price rises as Klarna valuation tops $45 billion

Buy now pay later stocks continue to be all the rage, as Swedish based Klarna sees its valuation reach USD$45.6 billion.

Klarna funding round in focus

What is a fair valuation for a hyper-growth company with years of runway left?

According to SoftBank, about USD$45.6 billion.

That’s how much the global buy now pay later (BNPL) company Klarna is worth following its latest equity funding round, led by SoftBank’s Vision Fund 2.

According to Softbank’s Yanni Pipilis:

‘Klarna has already successfully expanded into the US and we are excited to continue supporting the team in bringing the next generation of financial services to new markets worldwide.’

Existing investors – Adit Ventures, Honeycomb Asset Management and WestCap Group – also participated in the round.

This funding round will see some $639 million injected into the company, earmarked for international and global growth.

Commenting on the raise, Klarna Founder and CEO, Sebastian Siemiatkowski, said:

‘I’m very proud of the investors who are supporting Klarna’s ambition to challenge these outdated models to empower consumers with fair, transparent, and convenient products to help them bank, shop and pay each day.’

This follows on from the company’s previous funding round completed in March, which saw Klarna tap the markets for $1 billion, at the time valuing the company at USD$31 billion.

Afterpay share price rises

News of Klarna's latest valuation looks to have spilled over into the Australian markets on Friday. While the broader market dipped in the first half-hour of trade, popular ASX-listed BNPL stocks surged. Afterpay gained 3.89%, Sezzle rose 2.72% and Zip climbed 3.93%.

Despite that, Klarna, now valued at USD$45.6 billion (approximately AUD$58 billion), is larger than those three BNPL companies combined and close to double the size of Afterpay alone.

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A matter of taste

Is the size disparity between Klarna and ASX-listed BNPL stocks justified?

A quick glance at Klarna's first quarter (FY21) results, released on 28 May, goes a long way to explain the gap.

Here the company reported quarterly global gross merchant volumes (GMV) of USD$18.9 billion and more than 90 million global active users. That volume growth, said management, was driven by a strong performance across all markets, with particularly good momentum being observed in the US market. Klarna has 18 million customers in the US.

That volume growth translated to solid revenue gains, with Klarna reporting quarterly revenues of SEK 2,951,907 (approximately USD$360 million), up from SEK 2,079,975 in the prior corresponding period.

In FY20 Klarna booked total revenues of SEK 10,000,104 (approximately USD$1.2 billion), suggesting the stock trades at around 38x FY20 sales, based on the company’s latest valuation round.

By comparison, that’s significantly behind Afterpay, which trades at 57x FY20 sales. On a trailing twelve month (TTM) basis that multiple compresses significantly, with APT trading on a 45x TTM sales multiple.

It should be noted that private companies tend to trade at a discount to their public counterparts, primarily due to the illiquidity of private shares.

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