The Commonwealth Bank of Australia (ASX: CBA) share price has been boosted in the past by its investment in unlisted buy now, pay later giant Klarna.
CBA has recently taken account of the value of its investment, envisioning it to be worth $15 billion more than Square valued Afterpay.
In CBA's full-year results, released to the market yesterday, the bank valued its approximate 5% stake in Klarna at around $2.7 billion. In June 2020, CBA valued the stake at just $506 million.
CBA's new valuation means it interprets Klarna to be worth approximately $54 billion – a figure it believes to be conservative.
So, how has Klarna affected Commonwealth Bank's share price over the years? Let's take a look.
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Klarna's impact on CBA
In January 2020, CBA upped its stake in Klarna to around 5%. In return it received a 50% interest in Klarna Australia and New Zealand.
Klarna officially launched in Australia on 30 January 2021 and in New Zealand on 4 May 2021.
CBA had previously paid $100 million for 1.8% of the BNPL giant. The additional 3.7% cost the bank $200 million.
The CBA share price gained just 0.9% on the bank's increased investment and 0.8% when it launched in New Zealand. Clearly, shareholders weren't aware of its growth capabilities. Nowadays, Commonwealth Bank's investment in Klarna is known to have been an absolute bargain.
The net return on CBA's investment is currently around $2.4 billion – an 800% return on investment.
On the day the Commonwealth Bank upped its stake in Klarna, the CBA share price was $85.44. It has since gained nearly 26% to trade at $107.41 at the time of writing.
That means, using the number of outstanding shares available in the bank today, its market capitalisation has increased by $402 million in that time. That is a far greater increase than the growth of CBA's investment in Klarna.
When estimating the value of the BNPL giant, the bank stated it took into account the value of similar listed companies, Square's bid for Afterpay, and a recent capital raise conducted by Klarna in June.
At the time of the capital raise, Bloomberg reported it valued Klarna at US$45.6 billion ($61.8 billion using today's exchange rate).
The CBA share price gained 0.7% the day news broke of Klarna's capital raise.
How has Klarna impacted the CBA share price?
While CBA's investment in Klarna has undoubtably boosted the value of CBA, it's hard to specify how much it has contributed to the bank's valuation.
However, the CBA share price has been growing strongly alongside Klarna's value.
It's gained 28% year to date and 45% since this time last year.
