A buy now, pay later giant, that has seen one of Australia’s biggest banks inject millions into it, has recorded its biggest annual loss in its history – racking up an operating loss of $A1.4 billion.
However, the Swedish payments firm called Klarna has maintained it will return to profitability while it also raised its chief executive’s pay by a third as it shared the huge loss.
It comes on the back of a torrid time for the BNPL sector in Australia.
Zip recently revealed its losses have blown out to $240 million, Openpay collapsed at the start of February while lender LatitudePay – which is used by major retailers such as JB Hi-Fi, Kogan and The Good Guys – announced it was pulling out of the sector from April.
Klarna’s value was also slashed from $A66.7 billion to $A9.8 billion last year as the cost of living and war in Ukraine hit consumer spending.
It revealed its annual net loss had soared by whopping 47 per cent from 2021.
However, its net losses narrowed in the fourth quarter to $A270 million down from $A655 million a year earlier, while the value of goods purchased through Klarna – was up 22 per cent and revenue growth was 19 per cent.
Growth was particularly strong in the US where retail sales were up 71 per cent – with the region the largest market for revenue in December for the company.
Its credit losses almost topped $A200 million in the last three months but this was an improvement of 18 per cent compared to the same period in 2021.
Despite racking up the losses, Klarna’s chief executive Sebastian Siemiatkowski saw his total pay packet increase by 35 per cent to $A1.8 million but the company defended the move, telling the Financial Times its remuneration policy was in line with other tech companies “in order to hire and retain the best talent”.
“We are making concrete progress towards profitability, simultaneously driving growth well ahead of e-commerce and reducing credit losses and costs,” added Mr Siemiatkowski.
But Financial Services CEO Grant Halverson said last year was an “annus horribilis” for Klarna and the “bad news” continued for the firm.
“Klarna slashed its value to get $US800 million in funding (last year). That’s gives a big clue to cash burn, give the last round June 2021 – so $US640 million raised and disappeared in less than 12 months,” he told news.com.au.
“Klarna is now valued at $US6.7 billion versus $US45.6 billion, an 87 per cent decline similar to BNPL stock prices around the world are down 94 per cent. Klarna had boasted about valuation in $US50-$60 billion early in 2022.”
Its been a rapid fall in fortune for the payment giant, which was founded 17 years ago and was previously Europe’s highest-valued private company and was profitable until 2019, when it hiked its spending to expand globally.
Last May, it sacked 10 per cent of its workforce in an effort to cut costs as its valuation was cut by 85 per cent
Commonwealth Bank owns a 5 per cent stake in Klarna after a $US300 million ($A433 million) investment in 2019 and 2020.
The wider BNPL sector is facing tighter regulations in Australia with a number of groups backing a crackdown.
Mr Halverson said real issue for BNPL is rapidly rising interest rates and the inability to pass these rates onwards.
“Klarna is better off than other BNPL apps – it owns a bank in Sweden so can access more varieties of funding,” he added.
But he said seasoned financial analyst Marc Rubinstein of Net Interest estimated that based on average loan balances, Klarna’s bad debts doubled from 4.6 per cent in 2018 to almost 12 per cent at the end of last year.
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