Buy now, pay later firm Klarna cuts losses in first half but falls short of profit

Swedish buy now, pay later firm Klarna reduced its losses by roughly 67% in the first half of 2023, as the company dramatically cut costs in a bid toward profitability.

The company reported overall net operating income of 9.2 billion Swedish krona ($843.5 million), up 21% year-over-year. Failing to record a half-year profit, the firm posted a net loss of 2.1 billion Swedish krona for the period, down 67% from 6.4 billion krona between January to June 2022.

Klarna did, however, say that it recorded one month of profitability in the first half of the year.

Credit losses, a measure of how much the company sets aside for customer defaults, sank by 39% to 1.8 billion krona from 2.9 billion.

Buy now, pay later, or BNPL, firms allow shoppers to defer payments to a later date or purchase things over installments on interest-free credit.

These firms are able to offer zero-interest loans by charging merchants, rather than customers, a fee on each transaction — but as interest rates have risen, the BNPL funding model has been challenged.

Sebastian Siemiatmkowski, Klarna’s CEO and founder, previously told CNBC the company was planning to achieve profitability in the second half of 2023, suggesting that an aggressive cost-cutting strategy in 2022 — which included hundreds of redundancies — had paid off.

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

“To some degree, all of us were lucky that we took that decision in May [2022] because, as we’ve been tracking the people who left Klarna behind, basically almost everyone got a job,” Siemiatkowski said at an interview in Helsinki, Finland, at the Slush technology conference last November.

“If we would have done that today, that probably unfortunately would not have been the case.” Klarna last year saw 85% erased from its market value in a so-called “down round,” taking the company’s valuation down from $46 billion to $6.7 billion.

Some of the company’s peers, like PayPal, Affirm, and Block, also saw their shares plummet sharply amid a wider sell-off in technology valuations.

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