Klarna reported its financial result for Q1’23. Revenue reached 4.9 billion SEK (+13 % year-over-year) and the net result was -1.3 billion SEK (-51 %).
With an overall credit losse ratio at 0.37 %, it seems like the “New geographies will behave like Mature geographies” is playing out and the overall story towards profitability is holding up, even if seems like the company will be profitable on a monthly basis earliest in the fall/early winter and not “by summer” (which I read as no later than August) that has been communicated earlier.
To become profitable by summer it seems like revenue growth needs to accelerate or other costs (mainly personell cost) will have to come down. But with an improving business and a better financing market, a few months here or there likely doesn’t matter to Klarna.
One of the most powerful things that can happen in a startup is improving customer cohorts (a cohort normally is a group of customers from a specific time period.) An example of an improving cohort would be that the group of new customers from January 2023 have spent more after two months than the group of new customers from January 2022 had after two months.
Another powerful improving cohort type, both from revenue/profitability and fundraising perspectives, is “the customer cohort in New geography is trending towards having the performance of the customer cohort in Mature geography“.
In Stockholm this New/Mature geography customer cohort is playing out with Klarna and credit loss rates. In Q4’22 Klarna had a credit loss rate of 0.58 % globally. But looking at older annual reports, the Swedish and German credit loss rates were reported to be in the 0.25-0.30 % range. If those numbers are still relevant, and US credit loss rates can come down to that level, it would lower credit losses with about 700 MSEK per quarter. Not enough to make Klarna profitable until the summer of 2023 by itself, for that to come true revenue growth would have to accelerate and/or operating expenses would have to come down.
Sebastian Siemakowski, Klarna CEO and co-founder, has expanded in an interview with TechCrunch on his earlier tweet that the US has passed Germany as Klarna’s largest individual market. In Q4’22 Klarna’s gross merchandise value (the value of products purchased with Klarna) in the US grew 71 % and it has 34 million users. Credit loss rates in the US should be down 37 %.
The combination of fast growth (with lower credit losses) in its largest market and the cost-cutting including layoffs Klarna did in 2022 should lead to improved operational profitability. The unknown factor, until Klarna reports its full numbers for Q4 2022, is how it grew (and with what credit losses) in European markets year-over-year.
Klarna returning to full profitability would be a good thing for #sthlmtech.
According to a tweet by Klarna co-founder and CEO Sebastian Siemakowski, the US is now Klarna’s biggest individual market ahead of Germany.
Klarna is one of the largest BNPL players globally, and having the US be its biggest market is a healthy sign that expansion is working.
It’s also a reminder that building startups take a very long time. Klarna was founded in 2005, launched in the US in 2015 and in 2023 the US becomes its largest market.