Stockholm-based fintech Klarna Holdings offered a glimpse inside the buy-now-pay-later sector when it reported earnings earlier this week.
One main takeaway: Costs have been growing faster than revenue, even when excluding expenses related to loans that soured.
Klarna’s general administrative expenses hit 10.3 billion kronor, equivalent to $958 million, in the first six months of the year. That was 114% of its revenue, up from 85% of revenue a year earlier.
Because the company is private, its shares don’t trade, although it recently saw a huge drop in its valuation to $6.7 billion, from over $45 billion.
Klarna has said it was focused on rapid growth—which is what investors wanted—but it has pivoted in recent months to work on profitability.
Why the rising costs? In part, the company has pointed to its expansion into numerous new countries, an expensive endeavor.
“When we set our business plans for 2022 in the autumn of last year, it was a very different world,” Klarna Chief Executive Sebastian Siemiatkowski told investors. "When growth was the focus for investors and the money was there to make big investments, we focused on growth."
Also included in the recent results are expenses related to recent layoffs, a spokeswoman said.
Others in the fintech space have pointed to competition for new customers, which has led to growing marketing spending for all involved.
The trends aren’t terribly different at U.S.-based competitor Affirm. Expenses at the company including sales and marketing, general and administrative costs and technology, hit 127% of revenue in the second quarter, continuing what has largely been an upward trend.
Affirm has pledged operating profits by the end of next year. Its CEO has expressed confidence about how the company will fare in a recession.
Correction: Klarna's valuation recently fell to $6.7 billion. A prior version of this article incorrectly said it fell to $6.5 billion.
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