Swedish buy now, pay later (BNPL) giant Klarna has had its valuation cut to $6.7bn, in a sharp turn of fate for what was once Europe’s most valuable fintech.
Klarna’s new valuation represents a mere fraction of the $46bn enterprise value it scored this time last year, when it raised a $639m round led by SoftBank, making it Europe's most valuable startup.
The valuation cut accompanies a new $800m funding round that features existing investors including Sequoia, Bestseller and Silver Lake, as well as new investors including the UAE’s sovereign wealth fund Mubadala, and the Canada Pension Plan Investment Board.
“It’s a testament to the strength of Klarna’s business that, during the steepest drop in global stock markets in over fifty years, investors recognized our strong position and continued progress in revolutionising the retail banking industry,” CEO Sebastian Siemiatkowski said in a statement on Monday.
"Now more than ever businesses need a strong consumer base, a superior product, and a sustainable business model.”
Elsewhere, Siemiatkowski took to Twitter to explain what the "media might omit in reporting on this." So, as an FYI:
Trouble at Klarna
In May, Siemiatkowski announced the company was laying off 10% of its global workforce, citing market constraints.
As many as 700 people were affected by the layoffs, which signalled that not even the most well-capitalised fintech in the continent is immune to an economic downturn.
Despite all its funding, the company has had a growing burn rate for quite some time. In May, the company quietly announced that pre-tax losses tripled to $250m in the first three months of the year, up from $80m in the same period last year.
In a statement announcing the fresh funding, Klarna justified its revised valuation by pegging itself against its peers.
“Klarna has not been immune to the significant downdrafts of fintech stock in public markets,” the statement said.
“The company’s peers are down 80-90% vs peak valuations and consequently the adjustment in Klarna’s valuation is on par with its public peers from its $45.6bn valuation in June 2021.”
Meanwhile Sequoia, which has backed Klarna since 2010, attributed the revised valuation to fluctuating investor sentiment.
“The shift in Klarna’s valuation is entirely due to investors suddenly voting in the opposite manner to the way they voted for the past few years," said Michael Moritz, partner at Sequoia.
"The irony is that Klarna’s business, its position in various markets and its popularity with consumers and merchants are all stronger than at any time since Sequoia first invested in 2010. Eventually, after investors emerge from their bunkers, the stocks of Klarna and other first-rate companies will receive the attention they deserve”.
BNPL startups like Klarna thrive in a low-interest rate environment where it doesn’t cost much to offer credit to consumers for no or very low interest.
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.