Sebastian Simyatkowski Klarna’s co-founder and CEO looked a little worn on his webcam as he explained over Google Meet why everything was fine at the fintech company, despite the mounting frenzy warnings of an impending recession.
Klarna is a European heavyweight and currently the most valuable private tech company in the EU. Since launching in 2005, the Swedish unicorn has become synonymous with “buy now, pay later” (BNPL), a type of debt popular with Gen Z that allows shoppers to spread the cost of online purchases over several months . The company claims it has 147 million active users in 45 countries.
But Klarna’s dream — to replace the credit card that Siemiatkowski describes as “the worst form of credit” — is facing a series of existential threats. The company’s workforce remains affected by layoffs affecting 10% of its workforce and new regulations that will impose stricter rules on BNPL suppliers in one of its key markets, the UK. Meanwhile, BNPL executives told Wired that investors are losing faith in the industry in the face of a potential recession. “BNPL is relatively new. They want to understand how we can weather this storm,” said Libor Michalek, CTO of Affirm, another BNPL provider. June 16, Wall Street Journal Klarna is trying to raise funds based on a $15 billion valuation, the report said, meaning it believes the business is worth $30 billion less than last year. Klarna declined to comment on the so-called “speculation.”
Siemiatkowski attributes the change in investor sentiment to volatility and a new strategy that will dampen its growth plans. “Six to nine months ago, investors were like, ‘Growth is the only thing that matters, just focus on that,'” Siemiatkowski said, claiming that was the reason for the layoffs. “We have to recognize that over the past six months, things have changed. Investors now want to see profitability. They want to understand how we are going to be profitable now.”
Focusing on short-term profitability will be a strategic shift for Klarna. The company’s first-quarter net loss snowballed to 2.5 billion kronor ($254 million), quadrupling what it was in the same period a year earlier, as it expanded aggressively in the U.S. “Klarna has been profitable for the first 14 years, but we’ve been investing heavily in new products and services over the past few years, and in new markets like the U.S., we’ve been reliant on people investing more money into the company,” he said.
Increased competition is also putting pressure on the company. Siemiatkowski described Apple’s decision to offer its own BNPL product as a proof-of-concept for Klarna. But one Klarna employee, who worked on merchant partnerships until the layoffs due to layoffs, said there was concern within the company that the market was getting crowded. “We’ve been trying to strengthen our competitors, or at least stop them, because if our competitors also have a place in our merchants, then we know we’re going to lose market share,” they said.