Klarna slashes 10% of workforce as losses more than treble to £497m

Buy now, pay later giant Klarna saw losses more than treble in the first half of 2022 as it faced soaring costs and mounting credit losses.

In response to losses, the firm slashed 10 per cent of its workforce – or ‘Klarnauts’ – in May alone and its boss told investors today that Klarna will ‘lend a little less sometimes, especially to new consumers’ as the economic environment worsens.

Klarna posted an operating loss of to 6.17billion Swedish crowns (£497million) for the first half, compared to 1.76billion crowns in the same period last year, as total credit losses rose to 2.85billion crowns from 1.85billion crowns.

Klarna  boss Sebastian Siemiatkowski told investors the firm is adapting its strategy to match the challenging economic outlook 

While the firm’s revenues jumped 24 per cent over the period to 9.1billion crowns, its total operating expenses before credit losses soared 72.7 per cent to 10.81billion crowns.

Klarna, which has been considering floating on the London Stock Exchange, told investors it has revisited its 2022 plans and will implement measures to meet the challenges presented by a worsening economic outlook and more risk-adverse investor environment.

Sebastian Siemiatkowski, chief executive and co-founder of Klarna, said: ‘When we set our business plans for 2022 in the autumn of last year, it was a very different world than the one we are in today.

‘Since then, we have seen a tragic and unnecessary war in Ukraine unfold, a huge shift in investor sentiment, a steep increase in inflation, a highly volatile stock market and a likely recession. All of these have marked the beginning of a very tumultuous year.’

In July, Klarna saw its valuation slashed by 85 per cent to £5.6billion as investor enthusiasm towards technology firms continued to wane.

BNPL firms such as Klarna were highly valued before the pandemic hit because investors expected them to perform well in the future, but those expectations are slipping amid the cost of living crisis and impending recession.

If consumers continue to tighten their belts and struggle to repay their BNPL debts, this could prove calamitous for providers like Klarna which do not charge interest or late fees.

Siemiatkowski said: ‘We’ve had a few years now where growth has been really heavily prioritised by investors.

‘Now, understandably, they want 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.

‘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. One of those decisions was to reduce the number of Klarnauts.

‘That is never easy and not a decision taken lightly. Similarly we’ve said we will tighten our approach to credit losses – these are an investment in growth, and we will lend a little less sometimes, especially to new consumers, supporting them to make the right decisions for them and for Klarna in changing economic circumstances.

‘Having led Klarna through the financial crash of 2007/8, one thing I know is that our business model is so much better in a tougher economic environment than the traditional credit card model.’

This post first appeared on Dailymail.co.uk