One of Australia’s major banks has poured millions into a buy now, pay later operator, but has since laid off 10% of its staff and its valuation has plummeted by $30 billion.
A buy now, pay later provider into which Australia’s biggest bank has poured millions has been hit by a dramatic fall in value, signaling fresh warnings about the beleaguered sector.
Swedish company Klarna had cut its latest fundraising from $1 billion (A$1.44 billion) to $500 million (A$722 million), but its valuation of $15 billion (A$21.6 billion Australian dollars) fell from just a year ago, reported The Wall Street Journal (WSJ).
Just last month, the WSJ had reported that Klarna’s valuation had settled at around US$30 billion (A$43.3 billion) when seeking new investment, but that has now halved, a sign of the current punitive environment for tech companies but also from the carnage sweeping the BNPL sector.
It’s also a stunning drop in value from June 2021 when Klarna, which was touted as Europe’s most valuable start-up last year, raised funds from Japanese venture capital fund SoftBank. at a valuation of $46 billion (A$66.4 billion). ).
Klarna laid off 10% of its workforce last month in a bid to cut costs, with its chief executive Sebastian Siemiatkowski advertising 570 staff who had been made redundant on LinkedIn.
Commonwealth Bank has a 5% stake in Klarna after an investment of US$300 million (A$433 million) in 2019 and 2020.
If Klarna is now worth $15 billion ($21.6 billion), as has been reported, CBA’s stake is still worth $750 million ($1.08 billion), but that’s a huge drop from 67% from the $2.3 billion. (3.3 billion Australian dollars) it was worth 12 months ago.
But CBA chief Matt Comyn continued to support Klarna, adding that it differentiated itself by its ability to deliver leads to merchants, which had been in business for 17 years.
Klarna posted a quarterly loss of SEK$2.5 billion (A$357 million), three times more than in the first three months of 2021.
Grant Halverson, founder and chief executive of payments consultancy McLean Roche, said a cut in funding shows “reluctant investors”.
“The $15 billion valuation knocks Klarna out of the top 20 unicorns and into 23rd place – no longer the number one fintech in Europe – some are falling out of favor,” he said. “Klarna has laid off 10% of its staff as a cost-cutting measure. He will have to do more than that.
The company’s borrowing costs have peaked as interest rates rise, he added.
“Klarna is already completely unprofitable, losses … in 2021 (jumped) to $831m, while Q1 2022 losses jumped $250m (A$360m) – it’s all in the wrong way,” he said.
“A big investor in Klarna is SoftBank, its Vision Fund recently posted a record investment loss of 3.5 trillion yen ($27 billion) for its last financial year. The Japanese giant is fighting for its own survival – this will have an impact on its ability to invest.
Financial analyst Marc Rubinstein of Net Interest also estimated that based on average loan balances, Klarna’s bad debts rose from 4.6% in 2018 to almost 9% at the end of last year.
Mr Siemiatkowski previously said higher bad debt is the cost of expanding into new markets and attracting new customers
The other key issue the markets will focus on is a looming recession, with BNPL’s bad debts completely unacceptable and companies having very little time to correct it, Halverson added.
A Klarna spokesperson said the company would not comment on fundraising or valuation speculation, but it was profitable for 14 of the 17 years in operation.
Experts have previously predicted potential “carnage” for the buy now, pay later industry as suppliers burn through cash, bad debts rise and customers forgo using the service – a pattern they say n is not sustainable.
Earlier this month, the founder of a Buy Now, Pay Later provider called Sezzle lost the bulk of his $800 million fortune after the company’s stock bombed, continuing a nightmarish run for the industry.
Last June, US founder Charlie Youakim boomed shares of Sezzle that were worth $9.20, but they crashed 96%, plunging to just 40 cents.
BNPL’s Australian suppliers have also been criticized by falling share prices. Overall, the sector lost A$1.05 billion in 2021, which has worried investors and seen share prices plunge this year.
Shares of Zip have plunged over the past 12 months and are currently trading at 51c, down from A$14.53 in May last year.
Supplier BNPL previously had a market capitalization of around A$6 billion – which was more than retailer JB Hi-Fi – but has since fallen to around A$600 million, a staggering 87% drop in share price. of the action compared to 2021.
Afterpay posted an incredible mid-year loss just months after it was acquired for A$39 billion.
The first results of the Australian company since its takeover by the American company Block have shown this
recorded a net loss of A$345.5 million in the six months ending December 31, 2021.
Andrew Brown of investment firm East72 has long opposed the BNPL industry and believes it could soon reach crisis point.
“The bad debt experience is horrible,” he said. The Sydney Morning Herald.
“The simple fact of life is this: BNPL’s business as a stand-alone business means you’re going to attract a lot of people who can’t pay their money back, especially if you don’t have credit checks. solid.”
Venture capitalist Bill Gurley also warned that tech company employees accustomed to “a Disney-like set of experiences/expectations at high-tech companies” were going to be faced with reality checks.
“For employees who have only known this world, the idea of layoffs or cost cutting (or being asked to come into the office) is downright heresy…” he said.
“Unfortunately, you can’t ‘desire’ the fact that if your business doesn’t have positive cash flow and capital is now expensive, you’re living on borrowed time. “Culture” won’t matter if your business isn’t there. »