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This week’s downbeat forecast from Klarna, the one-time king of European fintech, was more surprising than it needed to be. Perhaps if the Swedish group — now trading at a fraction of its former market value — had listed closer to home, its misfortunes would have come as less of a shock.
The pressing problem is weak consumer spending in Germany, the largest market for Klarna’s buy-now-pay-later services by payment volume. The company said this would impact its full-year revenue, causing the New York-listed shares to plunge by almost a quarter.
Klarna is young, at least as a publicly traded company, and managing the expectations of analysts and investors takes experience. But it’s not like there were no warning signs. Practically every indicator in Germany has been pointing to weak household spending. Consumer confidence in Europe’s largest economy hit a three-year low in the second quarter, according to GfK data.
Companies, too, have been sounding the alarm. H&M, the clothes retailer that is one of Klarna’s biggest clients, highlighted weak sentiment in Germany in its second-quarter results; payments group Nexi said the country was “definitely suffering” more than elsewhere; Lindt, the Swiss chocolatier, said it would slash the prices of its Christmas range in Germany after a weak Easter period.
Nor is it the first time a big swing in Klarna’s share price seems to have resulted from investors failing to pay sufficient attention. In February, shares in the company dropped 27 per cent because the growth of a longer-term lending product generated higher upfront costs — a timing quirk rather than a sign of incipient credit issues. Klarna responded with a series of YouTube videos to try to explain to investors and analysts how the product worked.
Perhaps the real problem is that Klarna is listed so far from home. The US market may offer deep pools of capital and the perception of high valuations. But there’s little incentive for investors to dive deeply into the workings of a company that is small by local standards and absent from most of the indices they are benchmarked against. The minority of successful European listings tended to involve companies that were already very large and had substantial US businesses, such as building materials group CRH or chip designer Arm.
In contrast, there is a benefit to being a big fish in a small pond: in the US, Klarna is a small cap, but in Europe it would be a contender to join indices such as the FTSE 100, Dax or Stockholm’s OMX 30. That would bring passive flows and encourage active investors to pay attention. And European traders would be less shocked to hear that the German economy isn’t doing terribly well.
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