Klarna: Next $100B Fintech Or Ticking Time Bomb?
Duration
13:58
Captions
1
Language
EN
Published
Sep 9, 2025
Description
Join my discord: https://discord.gg/GEdg7fpChd This video is for entertainment purposes only. It is not financial advice. If you’ve bought anything online in the last few years. You’ve probably seen or used the option to Buy Now, Pay Later, which is now responsible for 9% of all online purchases. It all began with a Swedish debt collector who turned a simple idea into a $350B industry. And his company, Klarna, is about to go public in a $14B IPO. In today’s video, I’ll make it really easy for you to understand Klarna, so you can decide if you want to own a piece of the company. 00:00 Intro 00:40 Origins 02:59 Business Model 04:37 Financials 08:04 Affirm vs. Klarna 09:43 Risks 11:53 Conclusion #investing #stocks #ipo #finance
Captions (1)
If you've bought anything online over
the last few years, you've probably seen
the option to buy now, pay later. It all
began with a Swedish debt collector who
turned a simple idea into a $350 billion
industry. And the company he started,
CLA, which leads the buy now pay later
market, is about to go public at a
valuation of $14 billion. So, if this
industry is the future, should we invest
in this IPO and profit from what could
be the next huge finance company? or are
there just too many red flags in a
business that helps people spend money
they don't have? In today's video, I'm
going to make it really easy for you to
understand CLA so you can decide if you
want to become an owner in this company.
The CLA story actually goes farther back
than you might think. The year is 2005
and credit cards weren't popular in
Sweden. Instead, consumers had this try
before you buy culture where they'd
receive items and pay later via invoice.
Now, this sounds amazing if you're a
shopper, but if you're a merchant, there
was a ton of risk if you didn't pay.
Enter Sebastian Shamyakovski, who was
working at a debt collection agency and
saw the gap. Merchants desperately
needed someone else to take the risk of
delayed payments, but consumers really
enjoyed the flexibility of the status
quo. With business school friends
Nicholas Adelber and Victor Jacobson,
Sebastian pitched the idea to anyone
who'd listened, and they basically got
laughed out of every room. That was
until angel investor Jane Whal wrote
them a $60,000 check. But beggars can't
be choosers. Jane secured a whopping 47%
of the company in exchange for the money
and five software developers that could
help build the product. CLA began as a
checkout solution for Swedish shoppers,
making it easy to buy now, pay later by
splitting purchases into interest- free
installments while guaranteeing revenue
to merchants. The idea spread fast,
drawing in retailers and users across
the continent and eventually the United
States. Before fintech valuations
crashed in 2022, CLA was the most
valuable private company in all of
Europe. Fast forward to today and CLA
has 111 million active users in 26
countries and helps consumers buy 112
billion worth of goods every year from
800,000 participating merchants. It's
growing extremely fast with CLA's US
revenue up 39% last year. But this
company doesn't want to be just seen as
a BNPL company anymore. CLA wants to be
the next JP Morgan and Amazon in one. A
super app at the center of every
consumer's life. They built their own
bank with 14 billion in deposits,
launched a debit card with 7.5 million
users, and they've become a shopping
destination in their own right with an
app integrating shoppable video and what
could be a huge advertising business.
CLA has had its sight set on becoming a
public company for a while. They filed
their S1 back in March, but delayed
their IPO due to uncertainty around
tariffs. Nine months later, and after a
string of explosive IPOs like Circle and
Figma, they're looking to hit markets at
a valuation of around $14 billion.
That's way down from their peak
valuation of 46 billion, but up from the
6.7 billion they had in 2022. So, since
this video is about figuring out if CLA
is an investable business or not, let's
dive into how they make money.
Unlike most fintech companies, Clara's
business model is actually very simple.
When you buy a $100 pair of shoes from
Nike, CLA pays Nike $97 and keeps $3 for
itself. Nike is happy to pay that
because you're buying a product you may
not have bought otherwise. When buy now
pay later is available, we're just more
likely to buy something. Since Clara
makes money from the merchant on those
purchases, it doesn't need to charge you
interest even though it's loaning you
money. And while these merchant fees are
the primary way that CLA makes money,
they also generate revenue if you're
late on a payment by charging a late
fee. And in some transactions, they'll
charge you interest up to 35.99% if you
want to pay your purchase off over a
longer period of time. Now, the newest
way CLA is making money is through
advertising. With 100 million active
users and deep purchase data, CLA knows
what you buy, when you buy, and what
you're most likely to buy next. CLA has
grown their ads revenue from 13 million
in 2020 to 180 million in 2024. and they
made it clear to investors they want to
focus on this more due to the higher
margins of that business model. Now
before we dive into the actual numbers,
I want to emphasize something
interesting about CLA's model that makes
it different from other buy now pay
later companies. Most buy now pay later
companies have to go raise debt to fund
the purchases that you're making at high
interest rates. But CLA on the other
hand actually runs a licensed bank in
Sweden. That means it can use its own
customer deposits to fund loans which is
a lot cheaper than borrowing it. As of
the middle of this year, CLA held around
14 billion in deposits, mostly from
savings accounts in Europe that it
attracts through high interest rates.
That means CLA can raise money at
roughly 3%, cover that cost with the 3%
merchant fee it charges on transactions,
and let them look to profit through late
fees, interest from longerterm financing
deals, and high margin advertising
inside the app. So, now that we know
Clara's business model, are they
actually making any money?
Clara's financials tell two completely
different stories. And the first is that
this company is absolutely crushing it.
Revenue hit 2.8 billion in 2024, up 24%
year-over-year, while GMV rose to 105
billion by 14%. Last year, the company
also reported an annual profit of 21
million after years of major losses.
That momentum has continued into this
year with revenue up 21% to 1.5 billion
for the first half of the year. CLA has
also gotten a lot better at monetizing
their customers. Their take rate
improved from 2.3% to 2.7%. Meaning
they're squeezing more revenue from each
transaction. But when you dig a bit
deeper, there's another story. That $21
million profit they had last year is
more accounting gymnastics than actual
bottomline growth. That profit they
highlighted was bolstered by one-time
gains, most notably the sale of CLA's
checkout business. If you strip that
out, CLA's actual losses would have been
closer to $400 million on the year. And
if you look at CLA's most recent
financial statements from Q1 and Q2 of
this year, its losses are actually
accelerating. It's important to note
though that's not because the core
business is backsliding. On an adjusted
basis, Clara delivered $32 million in
profit over that period. Instead, those
deeper losses came from onetime charges
related to the IPO and other accounting
items. Overall, CLA's business is much
healthier than it was a few years ago
when it was losing nearly a billion
dollars a year in 2022. So, up to this
point, Clara hasn't proved it can build
a quality business, but they're laying
out a few different ways that they
intend to become one. One of the main
reasons CLA loses money are because of
credit losses, which are by far the most
controversial part about this company
and the BMPL industry as a whole. Credit
losses are loans that the company
doesn't expect its customers will pay
back. CLA's credit losses exploded to
495 million last year, up from 353
million the year before. To put that
into perspective, 18% of CLA's revenue
goes straight to bad debt. That means
CLA is losing more money on defaults
than they spend on their annual
marketing budget. The big issue is there
isn't an easy solution to this. To grow
revenue, Clara needs to lend more and
that means pushing deeper into riskier
pools of consumers, creating more
potential for credit losses. So, if high
credit losses are just the reality of
this buy now pay later business, Clara
has to unlock profit in different ways.
The company has aggressively cut costs,
slow down hiring to lean more on AI, and
cut its marketing costs by hundreds of
millions over the past few years. Like I
mentioned earlier, they're also super
gung-ho on monetizing their massive user
base through advertising. CLA shopping
app is now where millions of consumers
are beginning their purchase process
with 3 million transactions processed
per day. Maybe CLA's interest free
payments were just the Trojan horse to a
trove of consumer data that can be sold
to the biggest brands. If CLA could get
its ad monetization to even $10 per user
annually, a fraction of what Pinterest
or Snap generate. That alone would add
over a billion in high margin revenue on
its 110 million active users. But as of
now, that's just a story and it's the
dominant one that investors will be
buying into with this IPO. Now, the next
way we'll understand Clar's business is
by comparing it to another publicly
traded BNPL company that it competes
with. But before we do that, I want to
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pin comment.
A firm is one of CLA's biggest
competitors, and it already went public
a few years ago in 2021 at a price of
$49 per share. Today, a firm is trading
at around $89 per share. That's an 80%
gain and its market cap is roughly
double Clar's expected IPO valuation of
14 billion. This could be a positive
signal for IPO displaying investor
enthusiasm in the buy now pay later
model. But what you should know is these
businesses are actually quite different.
A firm doesn't focus on interest free
installments like CLA does. Instead,
it's focused on being more of a
transparent installment lender charging
interest. It gives users more
flexibility than a credit card, allowing
them to pay over months or years, but
charges higher interest rates up to 36%.
A firm is growing faster than CLA and it
makes slightly more revenue with a
fraction of the transactions just 26
billion in GMV compared to CLA's 100
billion. And even though it lost nearly
$400 million last year, a firm trades at
a significantly higher valuation than
CLA because investors see those high
yield loans as a more reliable path to
profitability one day. What I thought
was interesting when comparing these two
companies though is that a firm and CLA
have almost identical credit loss rates
of about 18% of revenue. The story for a
firm is that if it can grow its revenue
faster than its opex, it can one day
become a profitable company off high
interest rates. Not too different from
just traditional credit card companies.
CLA's story is different. Instead of
leaning on interest, it's trying to
become a one-stop shop for banking and
shopping with all the users it brings in
with those interest free plans. Overall,
I don't think a firm deserves a 2x
valuation over CLER's expected
valuation. But bankers lately with these
most recent IPOs have been intentionally
underpricing the offering, so it's hard
to tell if they're being accurate or
not. This comparison could actually
point to a bit of upside for Clarence
IPO if you want to lock up some shares
with your brokerage. But let's get into
the risks because with BNPL companies,
they cannot be understated.
The BNPL industry as a whole is facing a
bit of a reckoning. FICO just announced
they're adding BNPL loans to credit
scores starting this fall. And one of
the biggest reasons why consumers loved
BNPL is that it didn't show up and
affect credit scores. Once BMPL hits
credit reports, it becomes just another
form of debt. The psychological barrier
returns when buying a handbag or a set
of golf clubs could affect your odds of
getting a mortgage. Overall, changes in
regulation and credit reporting could
have a severe impact on this industry
going forward. Then there's the major
competition in the space which could
keep Clara unprofitable as they fight
for the same users as a growing number
of rivals. Apple Pay, PayPal, Airm,
Block, even American Express are all
trying their hand to win users in what's
already a low margin market. Winning
market share will mean either taking on
higher credit risk or spending more in
marketing, neither of which is
sustainable forever. There's also
something else that's a bit suspicious
about Clara. Clara paid over $7 million
to entities connected to the CEO's wife.
Milky Wire AB, a sustainability firm she
founded, received 1.6 million for
environmental services. Clara also
donated 3.8 million to World Foundation,
where she's a board member. Now, the
board approved these transactions
without the CEO included in the
decision-making, but related party
transactions can be a major red flag.
Then there's the insider selling.
Between 2022 and 2023, insiders dumped
over 800 million worth of CLA stock in
private markets. Sequoa Capital sold 135
million shares preo. CEO Sebastian
Shomikovsky personally cashed out for 56
million while co-founder Victor Jacobson
took 73 mil off the table. When the
people who built the company are taking
8 figure paydays before an IPO, it
doesn't send the strongest signals to
the markets. But the biggest most
existential risk to CLA and the entire
BNPL industry is just the health of the
economy overall. If Americans start
tightening up on discretionary
purchases, Clara's growth engine slows
immediately. At the same time, a weak
economy could send credit losses
skyrocketing, hitting the company from
both sides. Less spending and more loan
losses. Lending to subprime borrowers is
risky even in a booming economy. And
it's worth noting that this is the exact
dynamic that caused the 2008 financial
crisis. Some businesses are much more
insulated than others in an economic
downturn. McLarna, which is already
lossmaking and holding billions in
consumer debt, could be one of the
riskiest stocks to own if economic
conditions deteriorate.
My mantra around this channel is that
every stock is a story. And the growth
of the BMPL industry is probably the
strongest pillar of CLA's narrative as
it heads into the public markets. BMPL
GMV was nearly $350 billion globally by
2024. That's up from tens of billions
only a few years earlier. By 2030, this
market is projected to be worth nearly a
trillion dollars annually. And the
world's biggest brands all want a piece
of the action. Arguably the biggest of
them all, Walmart recently selected
Clara as their exclusive term financing
partner. Even Stripe and JP Morgan have
integrated with it for payments. But the
number one reason why this industry is
hyperscaling is because consumers love
it. In a recent study by payments, 60%
of respondents from all generations said
they preferred BMPL to credit cards. And
it makes me think about something.
Credit card debt is currently at an
all-time record of 1.3 trillion and
people are spending billions every month
just to keep up with the interest
charges. So, with a lot of the negative
criticism around BNPL and people
describing it as the next financial
crisis, are credit card companies really
that better off? Their underwriting
clearly isn't flawless either, and
defaults are rising in that category as
well. This is where I'll jump in with a
personal anecdote and say that I've used
CLA myself. When expenses stack up
around the holidays and I'm buying
gifts, I actually find it really
advantageous to be able to spread out
the cost of those purchases versus the
net 45 terms I have with my credit card.
And overall, I've had a pretty good
experience using CLA. But the big
question we're facing here is not if
BMPL is here to stay. It's if CLA can
make it into a good business. If you
think the current economic outlook is
strong, that BNPL will continue to grow
rapidly and steal share from, for
example, credit cards, and that CLA can
become more profitable through business
models like advertising, you'd probably
want to buy the stock. But if you want
to invest in companies with proven cash
flows, low exposure to consumer credit,
and that aren't as sensitive to
recessionary environments, stock
probably isn't for you. Today, we talked
about how BMPL could be a trillion
dollar industry by 2030 with CLA leading
the way. But I also made this video
about a kind of unknown company that
could also lead a trillion dollar market
one day and has a pretty low stock price
right now. So check it out if you love
learning about companies that you can
invest