By
Godfrey Benjamin
April 26th, 2024
Sebastian Siemiatkowski, Klarna’s CEO and founder, said that the firm is very hopeful for the second half of 2023, suggesting that the aggressive cost-cutting strategy in 2022 may now be yielding.
Despite its efforts towards profitability, buy now, pay later firm Klarna has revealed that it failed to record a half-year 2023 profit. The Swedish firm, which had earlier taken measures to cut costs, confirmed that the measures did help reduce its losses by roughly 67% in the period. However, it was just not enough to improve its overall profitability, says Klarna.
According to the report, Klarna recorded an overall net operating income of 9.2 billion Swedish krona (approximately $843.5 million). Though up 21% year-over-year, it failed to record a half-year profit. The firm published a net loss of 2.1 billion Swedish krona for the same period, marking a 67% decline from 6.4 billion krona for the first half of the year 2022.
Klarna also saw its credit losses plunge by about 39%. That is from 2.9 billion to 1.8 billion Krona. For clarity, credit losses may refer to an amount that a company sets aside in case of customer default.
In any case, it appears that the buy-now-pay-later (BNPL) funding model is what is affecting the profitability of Klarna. BNPL, which allows customers to pay instalmentally for their purchases, currently faces serious challenges with rising interest rates. And, as expected, demand from merchants is not as strong as it could be.
It is worth mentioning that BNPL firms like Klarna are able to offer zero-interest loans by charging merchants, rather than customers.
Klarna Hopeful for Summer 2023
Meanwhile, Sebastian Siemiatkowski, Klarna’s CEO and founder, has not ruled out profitability for the remaining part of the year. In an interview with CNBC, he revealed that the firm is very hopeful for the second half of 2023, suggesting that the aggressive cost-cutting strategy in 2022 may now just be yielding.
Klarna saw an 85% erase from its market value in 2022 that took its valuation from $46 billion to $6.7 billion. However, it was a general downtime that brought about a wider sell-off in technology valuations. Many of Klarna’s counterparts such as PayPal, Affirm, and Block also saw their shares plunge sharply during the period.