Buy Now, Pay Later: Shine or Just an Eye Wash in a Debt-Loaded World?

 As the global economy grapples with rising interest rates, swelling consumer debt, and growing regulatory scrutiny, Buy Now, Pay Later (BNPL) finds itself in the spotlight again. The trigger this time: Klarna’s much-anticipated IPO. Investors, consumers, and policymakers are all watching closely — is this the dawn of a new fintech champion, or just another market frenzy in the making?

Klarna’s IPO: The Buzz

Sweden’s Klarna, once valued at $45 billion in private markets, has seen its valuation reset to around $12–14 billion as it prepares to list in the U.S. The company has returned to profitability in 2024 after years of heavy losses, reporting about $2.81 billion in revenue and a modest $21 million net profit. Its gross merchandise volume surged past $100 billion, underlining the scale of its global footprint.

The IPO pitch highlights more than just BNPL: Klarna is leaning into AI-powered payments, automation, and advertising monetization. AI has already been used to slash customer-service headcount by nearly a third and improve margins. In a market driven by narratives, “AI payments” is a story sure to catch both consumers’ and investors’ eyes.

The Affirm Parallel: A Cautionary Tale

To understand Klarna’s prospects, it’s useful to revisit the Affirm IPO in 2021. Affirm debuted in a blaze of glory at over $100 a share, surged briefly, and then plunged to nearly $10 as losses mounted and rising rates eroded the BNPL model’s attractiveness. Even today, after some recovery, it trades far below peak enthusiasm levels.

Affirm’s trajectory demonstrates a fundamental truth: BNPL firms are credit businesses disguised as tech companies. Their fortunes rise and fall not only with consumer adoption but also with macro factors — interest rates, delinquencies, and regulatory scrutiny.

Klarna’s Financials: Stronger, But Still Fragile

Unlike Affirm’s early public years, Klarna heads to Wall Street with cleaner financials. It is profitable, its scale is larger, and it is more diversified with merchant services and advertising revenues. But risks remain:

• Credit Losses: Q1 2025 showed Klarna slipping back into a $99 million loss as delinquencies ticked up.
• Regulation: BNPL is being treated increasingly like consumer credit, bringing higher compliance costs.
• Valuation Stretch: Analysts argue Klarna’s IPO pricing of $12–14 billion looks “hysterically high” relative to profitability.

 

Thesis: The Inevitable Hype Cycle

The numbers suggest Klarna is on steadier ground than Affirm was at IPO. Yet, public markets thrive on buzz and momentum, not just fundamentals. Klarna has the added advantage of weaving AI into its story, which will likely drive speculative demand in its first weeks of trading.

 Here’s the straightforward call:

• Klarna’s IPO will attract a frenzy, thanks to profitability headlines and that irresistible AI angle.
• The stock could spike to $100 when listed next week as traders chase the next big thing.
• But once hype fades and credit risks re-enter the conversation, it could settle back to $55 — eerily similar to Affirms path.

Stay figgy,

The Figured Figs Team 🌱

Disclaimer: “This article is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Readers are encouraged to consult a licensed professional before making any financial decisions."