Klarna’s losses triple to $850m after 10 per cent of staff laid off

This sector is being hard hit, with another company haemorrhaging $1 billion, and the CEO has warned “tough decisions” need to be made.

A buy now, pay later giant, that Australia’s biggest bank has poured millions into, has suffered an eye-watering pre-tax loss of $850 million.

The Swedish payments firm called Klarna saw its pre-tax loss more than triple in the first half of this year, adding to the BNPL sector’s nightmare run.

The company had previously reported a $250 million loss in the first half of 2021.

Klarna’s dramatic increase in losses was caused by administrative expenses including the cost of running the business, particularly as it looked to aggressively expand into the US, as well as paying salaries.

Its operating expenses ballooned to $1.3 billion, compared to about $821 million a year before, while its credit losses shot up 50 per cent to $397 million.

In May, Klarna sacked 10 per cent of its workforce in an effort to cut costs, with its chief executive Sebastian Siemiatkowski advertising 570 staff members who had been let go on LinkedIn.

Global payments provider Klarna is backed by the Commonwealth Bank.

Mr Siemiatkowski said Klarna had a few years where growth had been really heavily prioritised by investors, but now they wanted to see profitability.

“We’ve had to make some tough decisions, ensuring we have the right people, in the right place, focused on business priorities that will accelerate us back to profitability while supporting consumers and retailers through a more difficult economic period,” he said,

“We needed to take immediate and pre-emptive action, which I think was misunderstood at the time, but now sadly we have seen many other companies follow suit.”

It’s a rapid fall in fortune for the payment giant, who was previously profitable until 2019, when it hiked its spending to expand globally.

This has seen the payment giants enter 11 new markets since 2020 but its rapid international expansion has seen it spend heavily on marketing and user acquisition to try, particularly in the US, to compete with its US rival Affirm.

Klarna CEO Sebastian Siemiatkowski. Picture: Adam Yip

In the UK, the company also acquired PriceRunner, a price comparison site, in April.

Klarna reported it had generated revenues of $2 billion in the period spanning January to the end of June 2022, which had risen by 24 per cent from a year ago.

Commonwealth Bank owns a 5 per cent stake in Klarna after a $US300 million ($A433 million) investment in 2019 and 2020.

But Klarna’s value has plummeted compared to just a year ago dropping to $US6.7 billion ($A9.8 billion) from $US45.6 billion ($A66.7 billion), a sign of the current punishing environment for tech companies but also the carnage sweeping the BNPL sector.

Klarna said it is now used by over 150 million people across 45 markets, but plans to tighten its lending standards, as the cost of living situation worsens. However, its 450,000 retailers are where it makes its money.

As it seeks to return to profitability, it faces stiff competition as Apple launched its own BNPL service earlier this year, while PayPal has also entered the space with millions of customers on its books already.

Its advertising has included Rapper Snoop Dogg starring in ads for Klarna.

Maya Rudolph also starred in a Super Bowl ad for Klarna.

Thandi Phoenix films a video clip with The Inspired Uninspired duo for Klarna. Picture: Supplied.

In a further blow to the embattled sector, countries across the world have also flagged tighter regulations of the sector including Australia which will subject BNPL providers to credit laws. Meanwhile, the UK government will enforce tighter affordability checks and a crackdown on misleading advertisements.

But Klarna isn’t the only BNPL provider to be hit by huge losses.

Global payments provider Klarna isn’t the only BNPL provider hard hit.

Australian provider Zip revealed it had haemorrhaged money from its operations with a whopping $1 billion loss for the past financial year.

The Afterpay rival announced it was closing its United Kingdom business as part of a move to stem its losses.

It comes as experts predicted potential “carnage” for the BNPL sector this year as providers burn through cash, bad debts balloon and customers retreat from using the service – a model which they say isn’t sustainable.