“Buy-now, pay-later” firm Klarna is on track to return to profitability by the summer of 2023. The Swedish company recently reported a 67% reduction in losses during the first half of the year, thanks to significant cost-cutting measures. Klarna’s net operating income reached 9.2 billion Swedish krona ($843.5 million), a 21% increase compared to the previous year. However, the company still recorded a net loss of 2.1 billion Swedish krona for the period.
Despite this, Klarna announced that it achieved one month of profitability in the first half of the year, surpassing its internal target to achieve monthly profit in the second half. Sebastian Siemiatkowski, CEO and founder of Klarna, celebrated this milestone and stated that it disproves misconceptions about the company’s business model. Siemiatkowski emphasized Klarna’s agility and sustainability, as well as its support from a “healthy consumer base”.
One factor contributing to Klarna’s improved financial performance is its reduction in credit losses, which decreased by 39% to 1.8 billion krona. The firm also highlighted its focus on cost optimization, which played a significant role in achieving a monthly profit. Klarna reported a 26% year-on-year improvement in operating expenses before credit losses, partially due to its investment in artificial intelligence. The company’s push into AI has allowed for greater efficiencies in customer services and merchant dispute resolutions.
Klarna’s path to profitability has involved significant cost-cutting measures, including a 10% reduction in its workforce in May 2022. Siemiatkowski noted that this decision was made at an opportune time, as many of the employees who left Klarna were able to find new jobs quickly. The company’s cost-saving efforts have been successful, allowing it to generate a monthly profit in the first half of the year.
In addition to cost optimization, Klarna has also been investing in AI technology and personalized shopping features. The company recently revamped its app to offer personalized recommendations and a discovery feed similar to TikTok. David Sandstrom, Klarna’s chief marketing officer, explained that the aim is to provide users with products and brands before they even realize they want them.
Klarna has faced challenges in the past year, with its market value dropping significantly in a “down round.” Like other fintech companies, Klarna felt the impact of deteriorating macroeconomic conditions, including inflation, rising interest rates, and shifting consumer sentiment. However, the company remains optimistic about its future profitability and its ability to overcome these challenges.
With its focus on cost-cutting measures, AI technology, and personalized shopping experiences, Klarna aims to continue its path towards profitability and solidify its position in the buy-now, pay-later industry.