Klarna’s losses widen following first year of negative profit

Klarna, the Swedish buy now, pay later (BNPL) giant, saw its losses increase by around 85% in the first half of this year, compared to the same time last year.

Profits have been slowly declining for the company

In January – June 2019, Klarna suffered net losses of SEK 83.53 million ($9.52 million). But in the first six months of this year, the fintech was hit with a much larger $62.98 million in net losses.

But the fintech did report a total net operating income of SEK 4.6 billion – that’s a rise of 37% from the first half of 2019.

FY19 – Klarna’s first year of losses

The losses, whilst they do only make up three months of the next financial year for 2020, don’t bode well for the fintech’s route back to profitability.

For the 2019 financial year, Klarna announced its first year of losses to date. The fintech experienced a net loss of SEK 902 million ( $92.8 million).

The loss was put down to the firm’s expansion – which is slowly seeing it try to go global. Its new engineering hub in Berlin and its US expansion last year bumped operational costs for 2019 up to SEK 1 billion.

Profits have been slowly declining for the company, which was once hailed as the firm bucking the trend of unprofitable fintechs.

Last year, the firm published 2018 profits of SEK 105 million, which plummeted from a figure triple the size the previous year.

Losses look bad, but growth is up

Despite widening losses since last year, the fintech’s year-on-year growth is impressive at 37%.

Its biggest customer growth was in the US and UK. It says it added “almost” 14 million consumers over the last six months, claiming a 550% growth rate for consumer onboarding in the US.

Klarna has continued its rapid expansion this year – again, a likely explainer for the increased losses

It also says monthly active app users have doubled to an impressive 12 million. It claims “nearly” 1.2 million of these are in the US, pointing to the success of its expansion.

In terms of merchant growth, the start-up has onboarded more than 35,000 new retailers between January and June. That’s 200 new merchants each day.

Latest additions include high-street brands Vans and Timberland, designer label Ralph Lauren, and Chinese fast fashion retailer SHEIN.

And whilst it doesn’t split up its revenue streams in the report, Klarna claims non-credit and affiliate services are continuing to grow, acting as effective “revenue diversifiers”.

All steam ahead with expansion

Klarna has continued its rapid expansion this year – again, a likely explainer for the increased losses.

It launched in Belgium, Australia – seemingly the global hub of BNPL start-ups – and Spain over Q1 and Q2.

As for new products, it rolled out savings accounts in Sweden, and partnered with German savings marketplace Raisin.

It also launched Klarna Card in Sweden and Germany. It says issued cards to new users have doubled across these regions in the last six months.

Most recently, it launched loyalty programme ‘Vibe’ in the US. Still in beta, the service still just has a few thousand users.

Largest international rival heads to Europe

Whilst Klarna dominates Europe and continues to grow in the US, competitors overseas – namely from Australia – are advancing in on its market.

Afterpay, arguably Australia’s largest BNPL giant, acquired Spanish BNPL firm Pagantis earlier this month.

The deal will see Afterpay – which sits at a market capitalisation of around $19.8 billion – spearhead its advancements into Europe. It plans to expand into Spain, France, Italy and Portugal.

Interestingly, Afterpay is making a loss like Klarna. In 2019, the fintech experienced net losses of $31.69 million – notably less than Klarna’s the same year.

But Klarna is fighting back on Afterpay’s home ground. It signed a partnership with Australia’s largest bank, Commonwealth Bank (CBA) earlier this year.

The deal saw the bank invest $200 million into the Swedish fintech. In return, the bank secured a 5.5% stake in the company.

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