Buy now, pay later Klarna reduces losses by 67% and increases revenues by 21%

Klarna, a buy-now-pay-later company, aims to return to profitability by summer 2023.

Jakub Purzycki Norphoto Getty Images

Swedish buy-now-pay-later company Klarna trimmed its losses by about 67% in the first half of 2023, as the company cut costs significantly in an effort to achieve profitability.

The company reported total net operating income of SEK 9.2 billion ($843.5 million), up 21% year-on-year. After failing to post a semi-annual profit, the company posted a net loss of SEK 2.1 billion for the period, down 67% from SEK 6.4 billion between January and June 2022.

However, Klarna said it posted one month of profitability in the first half of the year, ahead of its internal target of being profitable on a monthly basis in the second half.

Klarna CEO and Founder Sebastian Simiatkowski hailed the company’s significant achievement in profitability, saying its results “clearly disprove the misconceptions surrounding Klarna’s business model, demonstrating that it is incredibly resilient and sustainable,” and supports a “healthy consumer base.”

“Some have argued that Klarna will struggle in a tough macro environment with rising interest rates, but having led the company through the 2008 financial crisis, I knew we had a strong and resilient business model to help us navigate this crisis. Despite the environment volatile, we did exactly what we set out to do,” Simyatkovsky said.

Credit losses, a measure of how well a company allocates customer defaults, fell 39% to 1.8 billion crowns from 2.9 billion.

Buy Now Pay Later, or BNPL, companies allow shoppers to defer payments to a later date or buy things in installments on interest-free credit.

These companies are able to offer interest-free loans by charging merchants, rather than customers, a fee per transaction — but with interest rates rising, BNPL’s funding model has been challenged.

Siemiatkovsky previously told CNBC that the company plans to achieve profitability on a month-to-month basis in the second half of 2023, suggesting that an aggressive cost-cutting strategy in 2022 — which included hundreds of layoffs — has paid off.

Klarna cut 10% of its workforce in May last year.

“To some extent, we were all lucky that we made that decision in May [2022] “Because while we were tracking the people who left Klarna behind, almost everyone got a job,” Simiatkovsky said in an interview in Helsinki, Finland, at the Slush technology conference last November.

“If we had done that today, it might not have been the case unfortunately.”

Klarna said cost optimization was a key factor behind its ability to turn a monthly profit in the first half of the year.

The company said operating expenses before credit losses improved 26% year-on-year, thanks in part to its drive toward artificial intelligence.

Klarna said the recently launched Customer Services feature “has made resolving clients’ business disputes more efficient, resulting in more than 60,000 hours saved annually.”

Like other fintech companies, Klarna has made a big push in AI recently, as it looks to capitalize on the growing spurt in the industry’s growth, following the birth of OpenAI’s ChatGPT.

In April, the company revamped its app with a host of new personalized shopping features. It’s trying to make the software similar to TikTok, which has a discovery feed for users to find content that’s right for their preferences.

David Sandstrom, Klarna’s chief marketing officer, told CNBC at the time that the goal was to “deliver products and brands to people before they know they want them.”

Last year saw Klarna wipe out 85% of its market value in a so-called “downward spiral”, sending the company’s valuation down from $46 billion to $6.7 billion.

Some of the company’s peers, such as PayPal, Afirm and Block, have also seen their shares fall sharply amid a broad sell-off in technology valuations.

Klarna at the time blamed deteriorating macroeconomic conditions, including rising inflation, higher interest rates, and a shift in consumer sentiment.