When mentioning the red hot buy now, pay later (BNPL) sector, an investor might immediately think of the two largest and most famous providers on the ASX. Those would be Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASZ: Z1P). Afterpay did arguably start and pioneer the whole BNPL craze a few years ago, and it remains the largest BNPL company on the ASX today.
Zip is the second largest provider and has enjoyed playing silver to Afterpay’s gold for many years as well. Even today, as the ASX is graced by a dozen BNPL companies all fighting for a slice of this growing pie, Zip and Afterpay still seem to dominate investor sentiment around the burgeoning industry.
But another name has been in the news lately. And this name has a powerful ASX friend.
Klarna cleans up
Klarna is a BNPL company based in Sweden. If you haven’t heard of Klarna, you will no doubt have heard of the ASX giant it has teamed up with to provide its services here in Australia. Yes, Klarna is working with Commonwealth Bank of Australia (ASX: CBA). Today, the two companies offer Klarna’s services through CBA’s platform.
So exactly how much of a threat to Afterpay and Zip does Klarna pose? A recent report from Bloomberg sheds some light on that question. The report tells us that Klarna is about to undertake a capital funding round to its institutional investors. The company is seeking to raise between US$800 million and US$1 billion in fresh funds.
The report states that this funding round has just valued Klarna at “around” US$31 billion (~$40 billion). That means it would be worth roughly triple what it was back in September last year when the company held its last capital raise. Based on current prices, Zip has a market capitalisation of $6.06 billion, and Afterpay boasts a $35.94 billion market cap.
Is Klarna a threat to Afterpay and Zip?
If that valuation for Klarna does come to fruition, it would reportedly make Klarna “Europe’s most valuable startup”, and a gorilla in the BNPL space.
Afterpay and Zip are attempting to aggressively expand into new markets, primarily the United States. And that’s where they might run headlong into Klarna. Bloomberg reports that Klarna has “risen in popularity in the US”, and has emerged as a challenger to other US payments companies like Paypal Holdings Inc (NASDAQ: PYPL) and Squre Inc (NASDAQ: SQ).
For Afterpay and Zip, competition is certainly not going away anytime soon. But then again, it’s also nothing new.
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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings and Square. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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