After letting go of 10% of its staff, Klarna’s losses tripled to $850 million.
Another company in this sector is losing $1 billion, and the CEO has said that “tough decisions” need to be made.
The biggest bank in Australia put a lot of money into a company that lets people buy things now and pay for them later. That company has now lost an eye-popping $850 million before taxes.
In the first half of this year, Klarna, a Swedish payments company, saw its loss before taxes grow by more than three times. This added to the bad news for the BNPL sector.
The business had said before that it would lose $250 million in the first half of 2021.
Klarna’s losses grew dramatically because of administrative costs like paying salaries and the cost of running the business, which was especially high as it tried to grow quickly in the US.
Its operating costs jumped to $1.3 billion from about $821 million a year earlier, and the amount of money it lost on bad loans went up by 50% to $397 million.
Klarna fired 10% of its employees in May to save money. The company’s CEO, Sebastian Siemiatkowski, posted on LinkedIn that 570 employees had been fired.
Mr. Siemiatkowski said that Klarna’s investors had put a lot of emphasis on growth for a few years, but now they wanted to see that the company was making money.
He said, “We’ve had to make some hard choices to make sure we have the right people in the right places, focusing on business priorities that will get us back to making money quickly while helping consumers and retailers through a tougher economic time.”
“We had to act right away, which I think was misunderstood at the time, but now we’ve seen many other companies do the same thing, which is sad.”
It’s a quick fall from grace for the payment giant, which was making money until 2019 when it started spending more to grow internationally.
Since 2020, this has led the payment giants to enter 11 new markets. However, its rapid international growth has caused it to spend a lot on marketing and getting new customers, especially in the US, where it wants to compete with its rival Affirm.
In April, the company also bought PriceRunner, a site that lets people compare prices, in the UK.
Klarna said that between January and the end of June 2022, it made $2 billion in revenue, which was up 24% from the same time last year.
After investing $US300 million ($A433 million) in Klarna in 2019 and 2020, Commonwealth Bank now owns a 5% stake in the company.
But Klarna’s value has dropped from $US45.6 billion ($A667 billion) a year ago to $US6.7 billion ($A9.8 billion). This is a sign of the harsh environment for tech companies right now, as well as the chaos in the BNPL sector.
Klarna says that it is now used by more than 150 million people in 45 markets, but it plans to make it harder to get a loan as the cost of living goes up. But it makes money through its 450,000 retailers.
As it tries to get back to making money, it has to deal with tough competition. Apple launched its own BNPL service earlier this year, and PayPal, which already has millions of customers, has also joined the market.
Countries all over the world, including Australia, which will make BNPL providers follow credit laws, have also said they will tighten regulations on the troubled sector. In the meantime, the UK government will make it harder to get loans and will crack down on misleading ads.
But Klarna isn’t the only BNPL company that has lost a lot of money.
The Australian company Zip said that it had lost a huge amount of money in the last financial year, a total of $1 billion.
As a way to stop losing money, the company that competed with Afterpay said it would close its business in the UK.
Experts have said that the BNPL sector could be in for “carnage” this year as providers burn through cash, bad debts rise, and customers stop using the service. They say this isn’t a sustainable model.