Fintech/News/

Klarna losses more than triple following valuation crunch

The buy now, pay later giant attributed its widened losses to market expansion coupled with increased credit losses as new customers signed up

By Amy O'Brien

Sebastian Siemiatkowski, CEO of Klarna

Swedish fintech Klarna has seen its losses more than triple in the first half of the year, amid a challenging period for the company that also saw its valuation plummet by 85%, financial results released today show.

The company reported operating losses before tax that swelled to to SEK6.2bn ($580m) in the six months to July, more than tripling from SEK1.8bn ($168m) in the same period a year earlier.

Revenue rose 24% to SEK9.1bn ($950m) in the first six months of the year, which Klarna said was driven by its surging adoption in the UK and the US. The company said it had built a user base of 30m in the latter, and transaction volumes had more than doubled from last year. 

Klarna attributed its growing losses to the costs associated with integrating Swedish price comparison site PriceRunner, which it acquired last November, as well as increased staff costs. 

Administrative expenses, which includes salaries, rose to SEK10.2bn in the first half of the year, up from just under SEK6bn a year earlier. 

“We’ve had a few years now where growth has been really heavily prioritised by investors […] Now, understandably, they want to see profitability” 

It comes after the company laid off 10% of its global workforce (around 700 people) in May, as CEO and cofounder Sebastian Siemiatkowski said the business needed to “show laser focus on what really makes us successful in the future”. 

Most notably, Klarna also cited increased credit losses as a driver of overall losses, thanks to the difficulties in underwriting consumers it picked up in new markets whose credit histories it couldn’t access.

Net credit losses widened to SEK2.9bn, up more than 50% from SEK1.8bn a year earlier.

“We’ve had a few years now where growth has been really heavily prioritised by investors,”  Siemiatkowski said in a statement accompanying the interim results. “Now, understandably, they want to see profitability.” 

Trouble at the top

Confirmation of Klarna’s worsening burn rate comes a month after the startup suffered a massive valuation drop from $46bn to $6.7bn, as it tapped investors for $800m in fresh funding.

Until July, Klarna had worn the crown as Europe’s most valuable startup since it raised $639m in the summer of 2021 in a round led by SoftBank.

It’s a sharp turn of fate for the fintech, which enjoyed huge growth during the pandemic as its alternative payment method — which allows consumers to pay for goods in interest-free instalments — surged in popularity alongside the boom in online shopping. 

BNPL startups like Klarna thrived in the low-interest rate environment, when it doesn’t cost much to offer credit to consumers.

For the past couple of years this has meant merchant fees and late payment charges brought in enough revenue — but their margins begin to narrow when central banks hike rates.

“Klarna has been operating in a very different environment in the first half of 2022,” Siemiatkowski said in a statement. “When we set our business plans for 2022 in the autumn of last year, it was a very different world than the one we are in today.”

Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — you can sign up here.

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