Troubled fintech Klarna’s losses quadruple
Swedish fintech giant Klarna saw its first-half losses quadruple to 6.2 billion Swedish kronor ($577 million), as costs balloon thanks to expansion and integrating its PriceRunner acquisition.
Operating costs grew 74% to reach 10.1 billion kronor ($1 billion), dwarfing the 18% increase in operating income, which reached 7.5 billion kronor ($700 million). Klarna’s credit losses – from non-paying customers – were up 54%, at 2.9 billion kronor ($267 million) – although the bank tried to put a positive spin on this, by noting this amounted to 0.7% of gross merchandise volume.
Some of Klarna’s losses are attributable to integrating Swedish price-comparison website PriceRunner, which it acquired for $1 billion, with the transaction closing in April 2022 – a case of unserendipitous timing, given the sharp market downturn this spring. The firm said it will be integrating new products and services based on PriceRunner in the second half of 2022.
“While we are still seeing strong growth across the business, in view of developments in the broader macroeconomic environment it is now time to consolidate and capitalize on the strong foundations we have established. We have revisited our 2022 plans and will implement a number of prudent and pre-emptive measures to meet these evolving challenges,” said Klarna’s H1 report.
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In July 2022 Klarna saw an 85% fall in its valuation in just over a year, from $46 billion to just $7 billion, during a funding round when it raised $800 million. In May the firm had announced it would lay off 10% of its 7,000-strong workforce – according to the H1 report, published this week, Klarna had 6,051 full-time equivalent employees on average over the period.
Until early this year, Klarna had been a notable fintech success story, with a strong revenue-generating model, and a growing market base. The H1 report boasted of Klarna’s success in the US, where it now works with 31 of the top 100 retailers – although entry into the US market is also a significant driver of its costs.
Launched in 2005, Klarna built its own core software platform – called Kred – on the Erlang language, developed by another Swedish firm, Ericsson. Klarna now runs Kred and other systems on AWS r5n.24xlarge instances, using 768GB of memory, with integrations with Apache Kafka – a combination which led to some problems last year.
Despite Klarna’s losses, investors and management insist the business is fundamentally sound, and will be able to return to profitability. They also blame the dramatic shift in Klarna’s valuation on market sentiment, rather than the business itself.
“We’ve had a few years now where growth has been really heavily prioritized by investors. Now, understandably, they want to see profitability,” said Klarna CEO and co-founder Sebastian Siemiatkowski, in the H1 report.
“So yes, now investors’ minds are turning back to profitability, but fortunately that is something we know how to do.”