The Australian arm of a buy now, pay later provider lost $56 million in losses last year in a performance it described as “catastrophic” with questions weighing on the viability of the business.
The Swedish payment company called Klarna had billions drove down its global valuation this year, while it laid off 10% of its workforce in a bid to cut costs in May, with its chief executive Sebastian Siemiatkowski announcing 570 staff members on LinkedIn.
But an audit of the 2021 financial accounts for Australia conducted by Ernst & Young and filed with local regulators revealed concerns that the Australian branch may not survive.
The accounts revealed that Klarna Australia posted a 12-month net loss of $56 million, four times more than when it launched in the country in 2020, when it reported a loss of $14 million.
The company also had a net asset shortfall of more than $70 million as of December 31 last year and the audit found the Stockholm-based parent company was forced to support the Australian arm.
Ernst and Young partner Michael Byrne said in the audit that the operating losses and shortfall in net assets caused significant uncertainty “which could cast significant doubt on the group’s ability to continue to operate”.
However, Klarna’s three-member board, including Mr Siemiatkowski who oversees the Australian arm of the business, said the company expects continued improvement in operating results for years to come, according to the notes. attached to the audit.
“A letter of support has been obtained from the company’s parent entity to support the company for at least 12 months from the date of signing of this report,” notes dated Aug. 19 read.
A Klarna spokesperson added that it was “committed and dedicated to Australia like never before and never left a market”.
Commonwealth Bank has a 5% stake in Klarna after an investment of US$300 million (A$433 million) in 2019 and 2020.
Payments expert Brad Kelly said that despite CBA’s $400 million investment, Klarna’s entry into Australia’s buy-it-now-pay-later (BNPL) market had been a “dismal failure” with the explosion of bad debts and the explosion of marketing costs.
‘It shows a company burning money so everyone peaked in December last year and they went down the toilet,’ he told news.com.au.
“So Zip and Afterpay were doing victory laps and their stock price was blowing up and meanwhile Klarna is setting the money on fire and getting nowhere – at least Afterpay and Zip got some trades, but Klarna seems to back off.
“So they failed to make it in the market despite CBA’s investments and its dismal failure and the question is what happens now? It’s a disaster and I don’t know if it can to be saved.
Mr Kelly warned that businesses and their owners could be at risk if the company goes bankrupt in Australia.
“Merchants are at risk if buy now, pay later fails. If the trader has not been paid for the goods shipped or purchased, he could become an unsecured creditor,” he said.
“What happens if the merchant is not reimbursed and becomes an unsecured creditor? »
Mr Kelly said Klarna’s woes reflected the wider industry trend, with warnings potential “carnage” to come as BNPL’s suppliers burn through cash, bad debts increase and customers forgo using the service.
Popular providers such as Afterpay and Zip are facing immense pressure in the current economic climate, with shares of Zip plummeting and extraordinary 76% this year, while Afterpay posted a staggering mid-year loss just months after it was acquired for $39 billion.
Klarna Australia’s audit also found it suffered a 71% drop in merchant and consumer commission revenue to just $3.1 million in 2021 from $10.8 million the previous year. .
It also saw credit loss fees explode from $169,271 in 2020 to $8.5 million, while it spent $27 million on marketing fees.
The accounts also indicated that Klarna held only 1.1% of the national BNPL market, according to an expert.
“These are catastrophic losses, they burn money with marketing and get absolutely nothing,” Mr Kelly added.
“They’re the littlest of the little ones, but they do a lot of damage along the way, especially to young women, because that’s their target in my opinion, along with fashion and beauty, and they end up in debt .”
However, a Klarna spokesperson said the analysis was inaccurate and that 2020 reflects a significant Klarna Group contribution of more than $10 million.
“Subsequent financial contributions took the form of debt which is reflected elsewhere in the accounts in 2021. We are very pleased with our performance in Australia where revenue more than tripled in 2021 and gross merchandise volume increased 5x with solid and continued progress into 2022,” they said.
“We now have over 4 million consumers and partner with big brands, including recently The Iconic.”
Jacqueline Liddell was a woman news.com.au recently spoke to who was ‘drowning’ in $40,000 debt she had racked up “addiction” buy now, pay latera world she was drawn into by her love of fashion.
Mr Kelly said Klarna appeared to be a “failed experiment”, adding that the global market seemed unsustainable, with no profit, no path to profitability and under increasing pressure from regulators.
Globally, it’s a rapid fall in the fortunes of the payments giant, which was previously profitable until 2019 when it increased spending to expand and earlier this year it announced a eye-watering $850 million pre-tax loss for the entire brand.