CBA cops $2bn buy now, pay later hit as Klarna valuation plunges

The banking giant says it’s keeping the faith in European tech outfit Klarna, despite its valuation plunging by 85 per cent.

Klarna CEO Sebastian Siemiatkowski. Picture: Adam Yip

The Commonwealth Bank has copped a multi-billion dollar hit to its investment in European buy now, pay later provider Klarna, whose valuation has nosedived from $US46bn ($68.4bn) to just $US6.7bn – a drop of 85 per cent – following its latest funding round.

Klarna, which was last year Europe’s most valuable tech start-up, announced overnight that it had raised $US800m in capital from new and existing investors, including CBA, along with venture capital giant Sequoia, Silver Lake, the UAE’s sovereign fund Mubadala Investment Company and Canada Pension Plan Investment Board.

The raise slashes Klarna’s valuation from a high of $US45.6bn, which it hit in June 2021, to just $US6.7bn, amid widespread carnage hitting buy now, pay later providers and the tech sector more broadly. CBA’s stake was valued at $2.7bn on June 30 last year, and the bank did not disclose how much it more it has acquired since then.

Morgan Stanley’s Richard Wiles said in a research last week that an 85 per cent year-on-year reduction in the value of Klarna would imply a writedown of around $2bn in the value of CBA’s stake, to around $400m.

In a statement announcing the capital raise Klarna highlighted the “worst stock downturn in 50 years.”

“Klarna has not been immune to the significant downdrafts of fintech stock in public markets. The company’s peers are down 80-90 per cent vs. peak valuations and consequently the adjustment in Klarna’s valuation is on par with its public peers from its $US45.6bn valuation in June 2021,” the company said in a statement.

“The fresh investment in Klarna occurred during possibly the worst set of circumstances to afflict stock markets since World War 2.”

A CBA spokesman confirmed the valuation drop but said the bank is maintaining the faith in the buy now, pay later provider.

CBA first bought a 2 per cent stake in Klarna for $100m in 2019 when it was valued at $5bn, investing another $200m in early 2020.

“We remain supportive of Klarna and this is reflected by our participation in its capital raising announced yesterday,” a CBA spokesman said.

“Since our initial investment in 2019, Klarna has almost trebled its global revenue, customer base and transaction volumes and now generates $US1bn in gross profit from its established European markets. We also remain firmly committed to our partnership in Australia and New Zealand.

CBA chief executive Matt Comyn. Picture: Adam Yip

“The change in Klarna’s valuation will be reflected in CBA’s end of year accounts, and will have no impact on the bank’s income, profit or capital position.”

Sequoia partner Michael Moritz said that Klarna’s valuation is “entirely due to investors suddenly voting in the opposite manner” to the way they voted previously.

“The irony is that Klarna’s business, its position in various markets and its popularity with consumers and merchants are all stronger than at any time since Sequoia first invested in 2010,” Mr Moritz said in a press release.

“Eventually, after investors emerge from their bunkers, the stocks of Klarna and other first-rate companies will receive the attention they deserve.”

Klarna chief executive Sebastian Siemiatkowski said the funding would primarily be used to expand Klarna’s operations across the US.

“It’s a testament to the strength of Klarna’s business that, during the steepest drop in global stock markets in over fifty years, investors recognised our strong position and continued progress in revolutionising the retail banking industry,” he said.

“Now more than ever businesses need a strong consumer base, a superior product, and a sustainable business model.”