Klarna Stock (KLAR) Rises as Lockup Fears Fade. Here’s Why

Klarna (KLAR) stock rose 4.73% yesterday after insiders signaled they would hold their shares following the expiration of the IPO lock-up period, easing fears of a large wave of selling. The reassurance came after Klarna published a detailed explanation arguing that the potential 10x increase in tradable shares would not translate into immediate selling pressure, prompting investors to step in and buy the stock.

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On February 19, Klarna announced its 2025 earnings. Investors didn’t appreciate what they learned; the share price dropped by 26.9%, completing a 65.4% collapse from the Initial Public Offering (IPO) price. Since the announcement, shares have been trading sideways, as investors were waiting to see what the insiders would do, sell or hold once the lock-up ends. With the announcement on Friday, management neutralized the lock-up expiry overhang.

What Is a Lock-Up?

First, let’s look at the rationale. Lock-up is the fiduciary responsibility of bankers toward new investors who participate in the IPO and thereafter to ensure there’s no information asymmetry, and that insiders do not merely use the IPO to exit their investment on behalf of new investors. Pre-IPO investors cannot sell shares before the lock-up expires.

Many assume this is a regulatory requirement. It is not. It is a best practice deployed by the investment banks, and not always a popular one. From my days as a bookrunner, I can tell you that delivering the news to pre-IPO shareholders that their money is locked for another 180 days rarely earned a warm reception. Some of those conversations made me grateful for my boxing training.

But the tension is by design; the lock-up exists to protect the integrity of the post-IPO market, even at the cost of keeping early investors uncomfortably patient. This also means that when the lock-up expires, a large chunk of the shares is eligible to be sold, and this is a key indicator of a company’s ability to thrive as a fully public company.

Where the Rubber Meets the Road

CoreWeave (CRWV), which was featured in my previous column, serves as a powerful example of how insiders’ actions are the signal. When CoreWeave’s lock-up expired back in August, the share price dropped 33% over two days, while pre-IPO investors sold about $1 billion in shares throughout the quarter and continued to divest another $1.8 billion.

A more uplifting example is Reddit (RDDT), which sold 25.3 million shares at IPO—$519 million in primary, and $340 million in secondary—when only executives and employees sold a portion of their shares (customary), and the venture capitalists (VCs) and other large investors did not sell any shares. When the lock-up expired, although the remaining 84.1% of shares became eligible for sale, the share price hardly budged and continued to increase. Reddit’s share price performance was strong, doubling since the IPO, backed by robust financial performance.

Large insiders only started to monetize their holdings when the share price was about 4x the IPO price. This is understandable; if I were in Advanced Publications’ shoes, which turned a $10 million investment into $4 billion, I would also sell some shares.

With Klarna, the listing was mostly a secondary trade, and the company was shifting into the red again, not a great starting point—but the IPO was well received. According to news reports, the offering was 20x oversubscribed, priced above the range, and popped 30% on the day. But this didn’t last, and the price has deteriorated and hit bottom last week.

However, with the news on March 6, public investors gained confidence in the company’s ability to win and started buying shares. The interesting thing is that there was no news on the actual performance of the company, just a signaling effect by the insiders, who remained invested in the company. Still, the share price is well below the IPO price, but early investors are in the money already today, and there is pressure from their limited partners (LPs) to sell, so the fact that they signaled they are invested means something.

Economics 101

This goes back to the fundamentals. The first and most important equation I learned in my Economics major was that when supply outweighs demand, equilibrium changes and price decreases. When a large amount of shares is added to the float, the balance becomes materially more fragile. Klarna is a great example of that.

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