Are you looking to buy an IPO? With Sofi Active Invest you can participate in upcoming IPOs before they trade on an exchange.
Due to the disruption of the COVID-19 pandemic, fintech specialists like Klarna, which provides online financial services such as storefront payment options, accrued more relevance in a condensed period than they thought possible. With many consumers still practicing contactless shopping, Klarna’s potential initial public offering or IPO attracts investors seeking the next big e-commerce trade.
Not only that, Klarna became one of the world’s leading providers of “buy now, pay later” (BNPL) solutions. This gives consumers greater flexibility with their spending, distributing costs over several interest-free payments. Moreover, celebrity investors like Snoop Dogg have voiced support for the Klarna IPO.
When is the Klarna IPO Date?
You won’t find Klarna’s public debut listed yet on an IPO calendar. However, all indications suggest that a public offering is nearing, possibly sometime this year. Despite Klarna increasing in value over several private funding rounds, management consistently signaled that they are interested in going public.
From a timing perspective, the company has a strong incentive to undergo an IPO as quickly as possible. With sentiment toward public debuts, particularly via special purpose acquisition companies (SPACs) at a fever pitch, now is the time to strike and extract maximum capital.
Klarna Financial History
It’s not just market sentiment that may determine Klarna’s decision to ultimately go public. Financially, the fintech firm sits on the crossroads between viable upside potential but requiring additional funds to actualize it.
Last year, Klarna crossed the $1 billion annual revenue benchmark for the first time, posting an operating income of $1.2 billion. Still, the company’s net loss jumped 50% to $109.2 million, reflecting increased costs due to international expansion.
If Klarna decides to move ahead with an IPO, its private funding history is very encouraging. So far, it has amassed $3.1 billion, giving the company a valuation of $31 billion.
Because the pandemic forced retailers to expand their e-commerce offerings, Klarna fortuitously positioned itself to accrue maximum benefit. As well, customers love Klarna’s platform, particularly the BNPL option.
BNPL sparks controversy because of its addictive draw, particularly for young people. Actually, research from MIT Sloan School of Management suggests that credit card usage activates reward networks in the brain.
Nevertheless, restricting consumer choice is also a problematic issue. Ultimately, the convenience and accessibility angle could result in a successful Klarna IPO.
How to Buy Klarna IPO Stock
For most investors, once you learn how to buy stocks using the steps outlined below, the process of participating in a traditional IPO is not much different. Unless you’re a well-connected investor with a substantial account, chances are the underwriters involved in a normal IPO process will not give you the “tap” on the shoulder to buy shares at their initial offering price.
Buying at the initial offering is advantageous because underwriters typically apply a discount against the price they believe the market will bear. This rewards IPO investors for their participation. The drawback is that IPO buyers must participate in all offerings that underwriters send their way; otherwise, they risk losing their connections.
A wrinkle regarding the Klarna IPO is that it’s possible management could opt for a direct listing. If so, this means that Klarna will not create new equity shares and will sell existing shares directly to the public without an underwriter.
A direct listing eliminates the “IPO pop” that represents the often vast difference between the initial offering price and the subsequent market price. However, without underwriters, issuing companies risk lackluster demand due to a lack of offering promotions. Also, this could impact the retail investor as shares could plummet upon their introduction to the public.
- Pick a brokerage.
Stock brokerages represent necessary intermediaries. Otherwise, it would be too chaotic for publicly traded companies to distribute their shares directly to individual investors. Thus, brokerages provide an efficient middleman, constantly channeling supply and demand among the investment community.
But which broker should you do business with? Mainly, this comes down to personal preference. Today, brokerages offer similar incentivizes to join, such as commission-free trading and educational opportunities. So, your choice often comes down to how you want to use the platform.
If you engage a hectic daily schedule, then a mobile trading app may be the most appropriate approach. On the other hand, if you anticipate growing in your investing journey, then you should look into platforms that offer full-spectrum services.
- Decide how many shares you want.
Once you’ve figured out which broker to use, you must now decide how many shares of your target investment (in this case, a potential Klarna IPO) you want to purchase. Obviously, this decision encompasses several variables, perhaps the biggest being your risk tolerance and account size.
Once you’ve figured out a dollar amount, take this number and divide it by the market price of your target stock. Whatever is the whole number represents the share count you can purchase.
Please note that some brokerages offer fractional share ownership. If this is a critical feature, include this as a must-have item in your brokerage search.
Also, since an IPO stock can pop much higher than the initial offering price, use the share-count conversion as a rough estimate. You may want to incorporate a multiple of the declared offering price to have a better idea of how many shares you can purchase.
- Choose your order type.
While similar to other retail transactions, the big difference in the stock market is the constantly fluctuating price of assets. To adjust for this dynamism, you must select an order type that reflects your preferred trading tactic. As well, you should note the following basic concepts.
Bid: The bid is the maximum price a buyer is willing to pay for a stock. It is always lower than the ask.
Ask: In contrast, the ask is the minimum price that a seller is willing to accept. It is always higher than the bid.
Spread: Also known as the bid-ask spread, this concept references the difference between the bid and ask price. Primarily, the spread is important because it represents the profitability margin for the market makers’ services, who take on risk as they acquire and distribute shares to buyers (investors). Second, the spread represents market liquidity, with narrow spreads indicating high liquidity whereas wide spreads warn about low liquidity.
Limit order: Some investors want to know to the last penny what price they will pay for a particular trade. If that’s you, the limit order is your best friend as it will only execute at a predetermined price. However, you must be aware that no guarantee exists that your target stock will reach that price, potentially leaving your order hanging unfulfilled.
Market order: If you’d rather have assurances that your order will go through, then you should select a market order. This order type executes at the next available price. However, such transactions lack transparency since you don’t know what the next available price really is until the order fulfills. Furthermore, market orders execute at the least favorable terms — buy orders on the ask, sell orders on the bid.
Stop-loss order: A stop-loss order represents automated portfolio mitigation. This order type exits you out of a position at either a predetermined price or the next available price, whichever comes first. While this offers peace of mind during periods of volatility, if a new session opens at a much lower price than the prior session (known as a gap-down session), a stop-loss order will execute at the next available price, which could be unpleasant.
Stop-limit order: Like a limit order, a stop-limit order brings control and transparency to protective order types. It will only execute at a predetermined price, which prevents the nasty surprises associated with gap-down sessions. However, because no guarantee of reaching the price threshold exists, you are taking a huge gamble that the target stock will not keep declining indefinitely.
- Execute your trade.
When you’re ready to pull the trigger on your target stock, follow the below simple steps for a market order.
• Select action type (buy or sell).
• Enter the shares you want to acquire (or sell).
• Make the request.
The process for limit orders is almost the same as the market order. Of course, the key difference is that in addition to inputting your share count, you must enter your desired execution price.
Deciding which order type to use depends on many factors. Generally speaking, a market order is useful when the target stock is moving rapidly. In such cases, it’s possible that the stock could “bust through” your limit order execution price, leaving the request hanging.
On the other hand, if you want to control exactly where you enter or exit a position, the limit order is the only type that gives you this transparency and predictability.
Best Online Brokers
Below is a list of best brokers for your consideration.
Equitybee is an online investing platform that allows accredited investors to access startups by helping fund employee stock options. Often, employees at pre-IPO companies don’t have the funds to exercise those stock options, but Equitybee helps on both sides of the process. It works like this:
- The investor wires the initial investment amount plus the 5% fee
- As mentioned, the employee agrees to pay 30% of the future value of the shares and x% in annual interest to the investors
- The company takes an undetermined amount of time (let’s say 3 years) from the time the investor funds the options to the time it IPOs at [whatever the IPO price is]
- After a successful IPO, the employee receives the proceeds of the stock option [the number of shares multiplied by the stock price.] As a result of their funding agreement, the employee wires the investor their original investment amount plus 3 years of interest. Additionally, the employee has agreed to pay 30% of the total they earned from the IPO.
- After the employee wires 30% of the total proceeds and interest to the investor, the investor pays a 5% fee to Equitybee
- Keep in mind that this is a taxable event for the employee and the investor. It’s wise to consult with a tax professional to seek further assistance.
With a system like this, investors can access pre-IPO companies and gauge their performance without making a huge bet on the day of the IPO.
A Fintech Solution too Relevant to Ignore
With every incentive ranging from convenience to a once-in-a-century pandemic pushing retailers to firmly embrace e-commerce, the potential Klarna IPO may be one of the most popular. Certainly, you can make the argument that it’s relevant for its online payment services and its accessible BNPL option.
The idea of introducing a debt platform is controversial. However, in this trying time, BNPL may give consumers a sense of normalcy as they attempt to rebuild their lives. Overall, Klarna presents an intriguing angle in the fintech space.