Klarna losses triple to $850 million after 10 percent of staff laid off

Swedish payments company called Klarna saw its pre-tax loss more than triple in the first half of this year, adding to the nightmare of the BNPL sector.

The company had previously reported a loss of $250 million in the first half of 2021.

Klarna’s sharp rise in losses was due to administrative expenses, including the cost of running the business, particularly as it aggressively sought to expand into the US, as well as salary payments.

Its operating expenses soared to $1.3 billion, up from $821 million a year earlier, while its credit losses soared 50 percent to $397 million.

In May, Klarna laid off 10 percent of its workforce in an effort to cut costs, and its chief executive, Sebastian Siemiatkowski, announced 570 laid-off staff members on LinkedIn.

Siemiatkowski said Klarna had a few years where investors had prioritized a lot of growth, but now they wanted to see profitability.

“We had to make some tough decisions, making sure we have the right people, in the right place, focused on the business priorities that will accelerate our return to profitability while supporting consumers and retailers through a tougher economic period,” he said. .

“We needed to take immediate and preventative action, which I think was misunderstood at the time, but now unfortunately we’ve seen a lot of other companies do the same.”

It’s a quick fall in fortune for the payment giant, which was previously profitable until 2019, when it ramped up spending to expand globally.

This has seen the payment giants enter 11 new markets since 2020, but their rapid international expansion has led them to spend heavily on marketing and user acquisition to try, particularly in the US, to compete with their American rival. Affirm.

In the UK, the company also acquired PriceRunner, a price comparison site, in April.

Klarna reported that it had generated revenue of $2 billion in the period from January to the end of June 2022, which was up 24 percent from a year earlier.

Commonwealth Bank owns a 5 percent stake in Klarna after an investment of $300 million (A$433 million) in 2019 and 2020.

But Klarna’s value has plummeted compared to a year earlier, falling to $6.7bn (A$9.8bn) from $45.6bn (A$667bn), a sign of the current punishing environment for technology companies, but also from the carnage sweeping the BNPL sector.

Klarna said it is now used by more than 150 million people in 45 markets, but plans to tighten its lending standards as the cost-of-living situation worsens. However, its 450,000 retailers are where it makes money.

As it looks to return to profitability, it faces stiff competition as Apple launched its own BNPL service earlier this year, while PayPal has also entered the space with millions of customers on its books.

In another blow to the troubled sector, countries around the world have also signaled tougher regulations on the sector, including Australia, which will subject BNPL providers to credit laws. Meanwhile, the UK government will enforce tighter affordability controls and crack down on misleading advertisements.

But Klarna is not the only BNPL provider suffering huge losses.

Australian provider Zip revealed that it had hemorrhaged money from its operations with a whopping $1bn loss over the last fiscal year.

Afterpay’s rival announced it was closing its UK business as part of a move to stem its losses.

It comes as experts predicted a potential “carnage” for the BNPL sector this year, as providers burned through cash, bad debt soared and customers stopped using the service, a model they say is not sustainable.