Klarna hopes to start making monthly profits again for the first time since 2020 within the next year, despite losses at what was once Europe’s most valuable tech company continuing to mount in the third quarter.
The Swedish payments company, whose valuation dropped from $46bn to $7bn following a funding round in July, has suffered during the tech rout and is trying to turn things round by laying off staff and tightening lending.
“This isn’t a boat, it’s a container ship. You don’t turn it around in the quarter, it takes some time,” chief executive Sebastian Siemiatkowski told the Financial Times on Wednesday, as Klarna reported a net loss of SKr2.1bn ($200mn) for the third quarter, compared with SKr1.1bn a year earlier.
Revenues in the third quarter rose 18 per cent to Skr4.6bn, driven by growth in markets including the US and UK.
Siemiatkowski is aiming for Klarna to achieve monthly profitability by August or September next year, but warned that it could still make a full-year loss in 2023. It last made an annual profit in 2018, a quarterly profit in the second quarter of 2019 and a monthly profit in August 2020.
He said he had been worried about the economic environment since January, and had been tightening its lending, especially on longer-term products.
Siemiatkowski added that the decision to cut 10 per cent of its staff in May was “painful and tough” but necessary, and provided stability to remaining employees, but stopped short of ruling out further cuts, but said that major macro-economic uncertainty remained.
At its half-year results in August, Klarna said it would look at tightening lending, especially to new customers, in an effort to staunch losses.
Siemiatkowski said that Klarna had “committed” to its strategy so it would not be dependent on more fundraising, but did not rule out further investment in the future to fund growth.
Klarna has been one of the pioneers in the buy now, pay later sector, which allows consumers to defer payments or make them in instalments.
While the products have proved highly popular among younger customers, a combination of worsening economic conditions, growing scrutiny from regulators and competition from lenders and Big Tech companies have posed a challenge to the sector’s business model.
Klarna’s woes reflect broader hurdles for fintechs, as central banks have put an end to years of largesse and the cost of living crisis has damped consumer spending.
In November, Stripe, the most valuable private company in Silicon Valley, announced it would cut 14 per cent of its workforce, about 1,000 people, at the start of November.
Listed companies have also struggled, with shares in US buy now, pay later company Affirm falling close to 90 per cent since the start of the year.
Siemiatkowski said that he believed ecommerce would begin growing “at healthy rates” from the third quarter of 2023, with “encouraging” data from Black Friday sales.
He added that while Klarna “could have done [its expansion] a bit differently”, its decision to scale up in markets such as the US was “still the right decision for shareholders and companies”.