Losses at buy-now pay-later giant Klarna more than tripled in the first six months of the year as it was hit by soaring employee costs and rising credit losses as it ramped up its expansion in the US.
In its first half results today, Klarna said that losses across the group soared to SEK 6.2bn (£500m) in the first six months of the year despite a 24 per cent jump in revenues on the same period last year to SEK 9.1bn (£816m).
The firm chalked the losses up to the costs of the integration of price comparison site PriceRunner, an increase in “employee costs” and rising credit losses across the group on the back of a major growth push in the US and UK.
The mounting losses come amid a turbulent period for the fintech giant after it was forced to slash its headcount by ten per cent in May as fintech and tech firms globally are hit by a major downturn.
Klarna said today it had significantly strengthened its position in the UK and US however, with US revenues more than doubling on last year as it went from an “unknown Swedish payments company to becoming a market leader” with 30m users.
Bosses indicated earlier this year that they were looking to scale back expansive growth plans and fast track a route to profitability, as investor sentiment shifts away from growth-at-all-costs amid the prospect of a looming global downturn.
In a statement today, boss Sebastian Siemiatkowski said he had seen a “huge shift in investor sentiment” in the first half of the year
“We’ve had a few years now where growth has been really heavily prioritized by investors. Now, understandably, they want to see profitability,” he said.
“We’ve had to make some tough decisions, ensuring we have the right people, in the right place, focused on business priorities that will accelerate us back to profitability while supporting consumers and retailers through a more difficult economic period.”
Klarna, once Europe’s most valuable startup, saw its valuation plummet from $45.6bn to $6.7bn as it raised $800m in a new funding round.
Investors are also growing wary of BNPL firms globally as regulators ramp up scrutiny and concerns grow around usage amid a global cost of living crunch.
In the UK, the Financial Conduct Authority is set to bring BNPL under its remit next year and last week fired a warning shot at the firms around the misleading promotion and advertising of the products as the cost of living climbs.
Cause for concern?
The impact of Klarna’s cost-cutting is yet to be felt, writes Charlie Conchie
After a bruising six months and a barrage of negative headlines, Klarna issued an important caveat today with its latest set of results.
While the Swedish firm has pushed through drastic cost-cutting measures and slashed its headcount in response to the “changing outlook” that has battered fintech firms in 2022, it stressed that any impact of the measures was yet to be felt.
The question therefore remains over whether the former fintech darling can revive its reputation among investors and prove a quick route to profits, or whether costs will continue to climb.
At first take, the financials look stark. Losses more than tripled in the six months to June as credit losses rose to 0.7 per cent, all while boss Sebastian Siemiatkowski openly underlined the fact that investors are now prioritising profit over expansive growth.
Buy-now pay-later firms are also tightening their underwriting processes amid fears that customers are leaning on the products to ease the cost of living crunch, and Siemiatkowski said it was likely to mean the firm was lending a “little less sometimes”.
But Klarna’s inroads into the US cannot be shrugged at. Gross merchandise value in the US more than doubled and the firm globally has recorded a 21 per cent uptick in the first half of the year, while e-commerce in general has slumped by four per cent.
The firm said its European markets are also racking $1bn in gross profit on an annual basis, with the UK performing “particularly strongly” ,and growth markets notching 105 per cent growth in gross merchandise value.
Siemiatkowski looked to convince investors today that, having been profitable for the first 14 years of its existence, it “is something we know how to do”.
As the impact of its cost-cutting plays out in the coming months, investors will be eager to see whether the proof is in the pudding.