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Klarna’s Valuation Slashed by $39 Billion Amid Fintech Rout

(Bloomberg) -- Klarna Bank AB’s valuation has been slashed to $6.7 billion in its latest funding round, 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 Monday. Its new valuation is down from the $45.6 billion it achieved in June 2021, with Klarna reducing its ambitions several times during the latest talks with investors.

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

Technology-focused businesses have suffered a rout this year as investors turned away from what they see as risky and potentially overpriced assets. Tech specialists such as SoftBank Group Corp. -- which backed Klarna last year, but wasn’t named as a supporter this time -- have been left sitting on billions of dollars of losses.

Chief Executive Officer Sebastian Siemiatkowski said in a series of Tweets that while Klarna isn’t immune to the stock downturn, and that now is the time to focus on a return to profitability, he finds the lower valuation “odd considering all the things achieved, how much larger and better and stronger we are now.”

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

Klarna is also exposed to downturns in consumer finances. It offers interest-free loans to spread payments for purchases over multiple installments, making money by charging retailers a small fee on every transaction and from interest on longer-term loans.

Read More: Klarna Customers Seek Loans for Groceries, Gas as Debt Risk Rises

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

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

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

Consumer credit startups are contending with their first experiences of soaring inflation, higher rates and looming recession pressures that could cause defaults to spike. Unlike more established banks, they do not have other income sources such as trading desks or home loans to counterbalance a fall in discretionary spending. Buy now, pay later firms are also facing increased regulatory scrutiny.

Klarna has 147 million global active users and 400,000 retail partners, including Nike Inc., Ikea, Sephora and Expedia Group Inc, according to its website. The new funds will target its expansion in the US, where the company has about 30 million customers, with volumes more than tripling in a year, Klarna said in the statement.

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

(Updates with chart, additional background from third paragraph.)

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