Klarna Sees 85% Fall in Valuation amid Inflation, Higher Interest Rates, and Competition 

European fintech Klarna recently saw a huge drop in its valuation, plunging from $45.6 billion to $6.7 billion. The company announced a new funding round on Monday, where it raised $800 million to reach a valuation of $6.7 billion. Meanwhile, Klarna secured a $45.6 billion valuation last year after Japanese multinational conglomerate company SoftBank Group injected some cash into the fintech company.

The difference in Klarna’s valuation is an 85% fall, which further shows grim investor sentiment on lenders and high-growth tech stocks. This comes after many guesses that Klarna was considering a down round. A down round is when a private company offers additional shares at a reduced price from what it was previously sold.

Klarna received contributions from existing investors like Sequoia and Silver lake. More participation came from funding company Mubadala Investment Company. The company plans to use the funds for further expansion in the US. According to Klarna, it now has nearly 30 million US users. The company also noted that investment banking company Goldman Sachs (NYSE: GS) is serving as an adviser for a part of the generated funds.

Klarna Valuation Plunges 85%

Sebastian Siemiatkowski, Klarna CEO, made an effort to downplay the impact of the company’s drop in valuation. Siemiatkowski stated the current position is a “testament to the strength of Klarna’s business.”

He wrote in a statement on Monday:

“During the steepest drop in global stock markets in over fifty years, investors recognized our strong position and continued progress in revolutionizing the retail banking industry.”

Generally, investors are showing concern with tech stocks in the private markets. Many tech firms backed by venture capital have seen valuation declines amid recession fears. At the same time, many technology companies have reduced their headcounts by laying off staff. These companies have also considered other cost-cutting measures to manage the current market condition.

Similarly, Klarna announced plans to let off 10% of its global workforce. The CEO said, while announcing the lay-off message in a pre-recorded video, that the current world is different from when the company set its business plans for 2022. He blamed the Russia-Ukraine war for the shift in consumer sentiment. Additionally, the CEO pointed to inflation and global stock volatility as the changes that have happened over the past year.

Fintech firms Klarna and Affirm (NASDAQ: AFRM) have faced questions of sustainability over time. Both companies let clients make installments payments. They are also faced with how they will sustain their businesses due to inflation and rise in interest rates. These “buy now, pay later” companies also face competition from multiple companies debuting in the space. An example is tech giant Apple Inc (NASDAQ: AAPL), which announced its installment loans feature last month.