Klarna losses quadruple as costs rise

Losses at Swedish payments provider Klarna quadrupled in a bruising first half for Europe’s one-time most valuable private tech company, as it prepares to slash costs in an effort to find a route back to profitability.

The payments company on Wednesday reported a net loss of SKr6.2bn ($581mn) for the first half of 2022, compared with SKr1.4bn a year earlier.

Klarna attributed the deepening losses to higher employee costs, investments in integrating newly acquired Swedish price comparison service PriceRunner and rising credit losses, reflecting the greater difficulty of underwriting new customers with limited credit histories.

Revenues increased 24 per cent year on year to SKr9.1bn, driven by growth in markets, including the US, where Klarna has built up 30mn users — a fifth of its global total. Its gross merchandise volumes grew 21 per cent to SKr396bn.

“Klarna has been operating in a very different environment in the first half of 2022,” said Sebastian Siemiatkowski, chief executive and co-founder. “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.”

Klarna’s struggles reflect the challenges facing buy now, pay later services, which allow consumers to defer or divide payments into installations.

The products are highly popular among younger users in sectors such as fast fashion. However, a trifecta of worsening economic conditions, growing regulatory scrutiny in markets, including the UK, and competition from lenders and Big Tech companies are challenging the business model.

After several attempts to raise cash at higher valuations failed, the value of Klarna’s shares slumped in July to $7bn after it raised $800mn from investors, including Sequoia and Mubadala, the Abu Dhabi sovereign wealth fund.

Klarna secured a valuation of $46bn as recently as June last year, following a $639mn funding round led by Japan’s SoftBank, the investment group behind a disastrous bet in office-sharing group WeWork.

The value of other buy now, pay later providers has collapsed in recent months. Shares of the US-listed provider Affirm, which has partnered with big retailers such as Amazon and Walmart, are down more than 80 per cent from their high in November.

The results also offer a snapshot into the struggles facing non-profitable fintechs more widely, as investors have become more cautious as interest rates rise.

Klarna last made a profit in 2019, although it said that its business in established European markets such as Sweden and Germany was profitable.

“We’ve had a few years now where growth has been really heavily prioritized by investors,” said Siemiatkowski. “Now, understandably, they want to see profitability.”

Klarna said in May it would slash its workforce by 10 per cent as it tries to cut costs.

Siemiatkowski said the company would look at tightening its lending, especially to new customers, although he said it would take some time for the impact of this decision to become apparent.

The Financial Conduct Authority warned buy now, pay later companies this month against misleading adverts. In December 2020, Klarna fell foul of the Advertising Standards Authority, which banned several of its ads on the grounds that they “irresponsibly encouraged the use of credit to improve people’s mood”.

Klarna said it had actively and substantially changed its influencer and advertising policy and invested in KlarnaSense, a product designed to encourage responsible spending.

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