Klarna has reported a ballooning net loss in H1 2020, as the company invested in an international expansion drive and set aside reserves to deal with credit losses amid the COVID-19 pandemic.
The company’s interim H1 report showed a net loss of 522 million Swedish krona ($59.8 million) between January and June, a sevenfold increase from the net loss of 73 million krona it posted in the same period last year.
Klarna is one of Europe’s most valuable privately-held technology companies, with a so-called “unicorn” valuation of $5.5 billion. It’s tied with British banking app Revolut and payments software maker Checkout.com as the region’s top FinTech.
A regulated bank, Klarna is mostly known for its “buy now, pay later” scheme that offers shoppers interest-free financing on retail purchases over a period of instalments. Klarna pays a merchant once a customer buys something using its platform, while that user is then invoiced over instalments.
Credit losses — incurred when a customer doesn’t pay back a loan — almost doubled to around 1.2 billion krona ($137,428,068), a figure the group said was adjusted for “macroeconomic uncertainty.” However, Klarna insisted the firm’s balance sheet was “strong” and overall losses accounted for only 0.6% of entire sales volume.
The company has been expanding aggressively overseas, particularly in the US market where it claims to have added another 1 million customers in the last three months. Klarna says that new customers affect its net credit losses.
Total net operating income came in at 4.6 billion krona ($526,807,640), which represented a rise of 37% from 3.3 billion krona in H1 2019. The company said its gross merchandise volume — the total sales made through its platform — was 215 billion krona ($24,625,885,000) in the January-June period, up 44% year-on-year.
“In the context of COVID-19 and the uncertainties it has unfortunately created for so many, a somewhat precautionary approach was necessary at times, including adjusting our credit policies globally,” Klarna co-founder and CEO Sebastian Siemiatkowski said in a letter to shareholders. “Despite this, we have seen accelerated growth and rapidly increasing demand for our services.”
It comes after the firm earlier this year reported its first-ever annual loss since operations began in 2005. Speculation over an initial public offering has circled Klarna for some time, and Siemiatkowski recently suggested that this could happen within the next two years.
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