Klarna’s valuation cut by $ 39 billion in the middle of the Fintech Rout

by James · July 15, 2022

(Bloomberg) – The valuation of Klarna Bank AB has been reduced to $ 6.7 billion in its latest round of financing, in a dramatic reversal for one of Europe’s most high-profile startups.

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The buy-now-pay-later giant said it raised $ 800 million from new and existing investors, according to a statement on Monday. The new valuation is down from the $ 45.6 billion it achieved in June 2021, and Klarna has reduced its ambitions several times during the recent talks with investors.

Once one of the world’s most valuable startups, Klarna discussed valuations as high as $ 60 billion as recently as February. That was before the war in Ukraine, and rising interest rates helped trigger a market-wide collapse.

Technology-focused businesses have suffered a setback this year as investors turned away from what they see as risky and potentially overpriced assets. Technical specialists such as SoftBank Group Corp. – who supported Klarna last year, but was not named a supporter this time – has been sitting on billions of dollars in losses.

CEO Sebastian Siemiatkowski said in a series of tweets that although Klarna is not immune to the stock decline, and that it is now time to focus on a return to profitability, he thinks the lower valuation is “strange considering all the things that have been achieved , how much bigger and better and stronger we are now. “

“What does not kill you makes you stronger,” he said.

Klarna is also exposed to downturns in the consumer economy. It offers interest-free loans to spread payments for purchases over multiple installments, and make money by charging retailers a small fee on each transaction and from interest on long-term loans.

Read more: Klarna customers apply for loans for groceries, gas when the debt risk increases

While customer numbers are growing rapidly, it is also accumulating its own debt costs and losses, and the business is burning through hundreds of millions of dollars per quarter. It delivered an operating loss of NOK 2.54 billion ($ 245 million) in the first quarter, and NOK 6.58 billion last year. The lender, which is regulated by the Swedish Financial Supervisory Authority, also recently cut staff in an attempt to curb costs.

Existing investors who supported the funding round include Sequoia, Bestseller, Silver Lake and the Commonwealth Bank of Australia. New investors included Mubadala Investment Co. and the Canada Pension Plan Investment Board.

Klarna’s decline is almost perfectly reflected by its US-listed rival Affirm Holdings Inc., whose market value has fallen from a peak of $ 46.8 billion in November to around $ 6.1 billion.

Consumer credit startups are struggling with their first experiences with sky-high inflation, higher prices and threatening recessionary pressures that could lead to an increase in defaults. Unlike more established banks, they do not have other sources of income such as trading tables or mortgages to counteract a fall in discretionary expenses. Buy now, pay later Companies are also facing increased regulatory control.

Klarna has 147 million global active users and 400,000 retail partners, including Nike Inc., Ikea, Sephora and Expedia Group Inc, according to their website. The new funds will target their expansion in the United States, where the company has around 30 million customers, with volumes that have more than tripled in one year, Klarna said in the statement.

“It is a testament to the strength of Klarna’s business that investors recognized our strong position during the sharpest fall in global stock markets in over fifty years,” Siemiatkowski said in the statement.

(Updates with diagram, additional background from the third paragraph.)