CNBC’s Jim Cramer explained why he thinks newly-minted IPO Klarna is a buy even after shares climbed during its first trading session.
“While Klarna roared right out of the gate, the stock hasn’t gone to an insane valuation yet. I think the numbers look good, so I think it can be bought at these levels,” he said, with the caveat that overall, he prefers competitor Affirm.
Klarna opened at $52 and saw gains on Wednesday after the the company priced its IPO above the expected range. The Swedish online lender is known for its buy now, pay later products. It is the latest hot IPO to hit Wall Street, and the largest of several set to debut this week. The IPO market has been booming as of late, propelling an IPO index to a 3-year high. By close, Klarna was up 14.55%.
Although known for its buy now, pay later service, Cramer noted that Klarna also has other offerings, like consumer financing options and a platform that helps people track their spending. While the bulk of the company’s revenue comes from transaction and service fees, Cramer explained that it also makes money from advertising revenue, products like its budgeting tools as well as interest payments from traditional lending. Cramer said he was satisfied with Klarna’s credit quality numbers, saying it has “impressive underwriting standards” even though that process is automated.
Overall, Cramer said Klarna has solid growth and improving fundamentals.
He pointed out that the company was profitable for years before actively deciding to invest in growth in 2019, according to the prospectus. Although it has been unprofitable since then, the company entered 12 new markets and focused on growth in the U.S. Management also said that profitability has been improving since 2023 — and Cramer was encouraged to find that over the past few years, the company has seen strong growth and shrinking earnings losses.
But Cramer said Klarna’s IPO wasn’t perfect. Much of its shares were sold by existing shareholders, not the company itself, he pointed out. Usually, he said he’d rather see the company “get the funds and invest in growth, rather than the IPO being exit liquidity for venture capitalists.” However, Cramer said that at this point, Klarna doesn’t seem to need the cash. It’s also been ready to go public for years now, Cramer added, saying the 20-year-old company is “pretty seasoned, as far as startups go.”
Cramer was fairly optimistic about the company’s ability to grow its valuation, which now sits over $17 billion. He suggested the success of Klarna’s peers — namely Affirm and Sezzle — bodes well for the company.
“The nice thing is that we have some good publicly traded analogues,” Cramer said. “Unlike Klarna, those two are profitable, though, but Klarna’s headed in that direction.”
Klarna declined to comment.
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