- Buy-now, pay-later firm Klarna wants 'a sane market' before IPO.
- The company is losing hundreds of millions of dollars annually, but says it is reducing credit losses.
- Klarna took a valuation haircut to $6.7 billion and carried out two rounds of job cuts in 2022.
The chief executive of Klarna, the buy-now, pay-later giant, has said the firm is awaiting profitability and a return to market "sanity" before embarking on the route to IPO.
Founded out of Sweden in 2005 by CEO Sebastian Siemiatkowski with Niklas Adalberth and Victor Jacobsson, Klarna lets shoppers spread the cost of online purchases across interest-free installments. The firm operates in Europe and expanded in the US alongside competitors such as Affirm and Afterpay. At one time, the company was the most highly valued startup in Europe with a valuation of $45.6 billion. That plunged by 85% to just $6.7 billion as the company raised again this year in a tougher market.
With the boom times in tech coming to an end, Klarna wants to become profitable as growth funding and appetite for tech stocks slump.
The firm will need to persuade potential investors that buy-now, pay-later is a sustainable model even through a pullback in consumer spending, and that it can avoid a Wonga-like reputation for overloading consumers with debt.
Siemiatkowski indicated an IPO may be a few years off yet, drawing a comparison with Google's IPO in 2004.
"To me, Google's IPO was like perfect," he told Insider at the Slush conference in Helsinki. "It was a market that was a few years after the dot com. It was a sane market. It wasn't overhyped, it wasn't under hyped and Google also had tremendous opportunity ahead of itself.
"So it wasn't like you were IPO-ing at the end of the growth cycle and I think Klarna is probably getting fairly close to that and I think markets are getting very close to that. Maybe now we're a little bit over-depressed and then we can get to some sanity, hopefully, that coincides with Klarna being in a good position."
The general performance of consumer fintechs listed in 2021 has been poor. Trading app Robinhood, card issuer Marqeta, and money-transfer firm Wise all saw share prices plummet this year while Klarna's peer US Affirm has seen its share price drop 85% year-to-date.
Siemiatkowski has been coy about any potential public listing and previously told CNBC that market volatility made him "nervous."
Klarna anticipates being loss-making in 2023
Klarna posted both higher revenues and higher losses for the third quarter of 2022 after a tricky year. The company has been through two rounds of layoffs in 2022 and saw its valuation drop by 85% to $6.7 billion after a fresh funding round.
The company laid off 10% of its workforce in May this year and had a second round of cuts in September with around 700 people leaving the company. That's helped to cut the company's operating losses by 42% between Q2 and Q3, per its latest report but the business has still lost 8.3 billion Swedish krona ($787 million) in the nine months to the end of September.
The firm said revenue was up 22% year-on-year to $1.4 billion in the nine months to the end of September. Klarna said it now has 31 million customers in the US, with lower year-on-year credit losses and a 92% year-on-year increase in gross merchandise volume.
Even as costs, interest rates, and inflation rise, Siemiatkowski said the company's growth roadmap hasn't changed dramatically.
"We're going to stay in all markets because nobody ever forgives you when you pull out a market, you can't come back," Siemiatkowski said.
Like other VC-backed growth companies, profitability has been a looming theme of the change in sentiment among investors in 2022. Siemiatkowski said cash-flow positivity was still the company's ambition and said: "Somewhere after summer next year we should be on a month-by-month basis profitable... Then that may still mean that we post a loss on the full year next year, but I don't know yet. We'll find out."
Amid a challenging macro-economic situation for lending businesses, Klarna tweaked its credit underwriting strategy in January and May, a necessary move which upset some customers, Siemiatkowski said. The company's interim report outlined that this meant the business would lend less, particularly to new customers, as it looks to lower default rates.
Klarna is belligerent to critics
Klarna also has a PR battle to fight. Siemiatkowski argues that Klarna is a better kind of debt than credit cards, since its rates tend to be lower. But critics say buy-now, pay-later services like Klarna and its competitors over-normalize being in debt for small purchases.
Klarna came under fire for its decision to partner with food delivery giant Deliveroo. British consumer finance champion Martin Lewis called out the partnership, suggesting it would lead to higher levels of indebtedness for minor, discretionary.
—Martin Lewis (@MartinSLewis) October 12, 2022This led to an angry rebuke from Siemiatkowski on Twitter. It's not the first time the Klarna CEO has taken to social media to criticize coverage of his business, having previously called out "media" for failing to understand his business.
—Sebastian Siemiatkowski (@klarnaseb) October 12, 2022
"If you provide a healthier form of credit, we're still credit, but it's a healthier form in my opinion, and you are rewarded through lower losses, our losses have been 30% below the credit card industry standard," Siemiatkowski said. "I know, because I took Klarna through 2007, that actually [our] kind of credit is also more recession-proof. You do get swings during a recession, yes, but you don't get them to the same extent as you would have gotten if you have very high-risk loans or very unaffordable loans on credit."
Correction: December 6, 2022 — An earlier version of this story misstated Klarna's valuation. It is $6.7 billion, not $6.5 billion.
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