Klarna Cuts Losses & Targets Profitability Later This Year: Would an IPO Follow?

Swedish buy-now-pay-later (BNPL) company Klarna’s first quarter 2023 operating losses fell by over half and it is now targeting to become profitable later this year.

The company was reportedly looking at an IPO last year but the plans did not make much headway – apparently due to weak market conditions.

Meanwhile, in the first quarter of 2023, Klarna reported an operating loss of $120.7 million which was 50% lower than the corresponding quarter last year.

“Klarna’s operating loss has more than halved from the first quarter 2022, and improved 78% on an adjusted basis, placing Klarna firmly on track to reach profitability on a monthly basis in the second half of the year,” said Klarna in its statement.

The improvement in performance is especially encouraging as it comes amid higher interest rates. Affirm for instance posted a GAAP operating loss of $310 million in the March quarter – as compared to a loss of $227 million in the corresponding quarter last year.

Notably, both Klarna and Affirm have laid off employees amid slowing growth. Also, the valuations of both these companies have tumbled amid the sell-off in growth names.

Affirm now trades at just around 8% of its all-time highs. Klarna too took an 85% haircut to its valuation and raised $800 million at a valuation of $6.7 billion last year.

Klarna Cuts Losses and Targets Profitability

In his statement, Klarna CEO Sebastian Siemiatkowski said, “This quarter we’ve impressively managed to grow GMV and revenue, at the same time as we cut costs and credit losses, and also investing ambitiously in AI driven products.”

Notably, Klarna has integrated ChatGPT into its product which helps users with shopping advice.

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Financial companies see a massive opportunity in AI and JPMorgan Chase is reportedly looking to launch a ChatGPT-like AI financial advisory platform

Siemiatkowski expects AI to help boost Klarna’s profitability and said, “We are on track to achieve profitability this year all while revolutionizing shopping and payments through our AI-powered approach.”

Notably, unlike many startup companies that are perennially loss-making, Klarna posted an annual profit in 2018. It posted a net profit in Q2 2019 as well as a monthly profit in August 2020. However, since then the BNPL company which now has over 150 million users is struggling with profitability.

That said, last month S&P Global assigned Klarna a BBB-/A-3 rating with a stable outlook – which is an investment-grade rating.

However, earlier this month, the credit rating agency downgraded SoftBank’s credit ratings deeper into the junk category citing the valuation slump in startup companies – which comprise the bulk of SoftBank Vision Funds.

Would an IPO be next for the BNPL Company?

Klarna was reportedly looking to go public last year. However, the US IPO market was almost dead last year – things haven’t been much rosier this year too even as there are signs of green shoots.

Arm, for instance, has filed for a US IPO which could help SoftBank raise almost $10 billion.

As for Klarna, the company hasn’t officially disclosed its IPO plans. However, if the company turns profitable, an IPO would be the logical conclusion.

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