Klarna Australia reports “catastrophic” loss of $56 million in 2021

A Swedish payment firm called Klarna had billion knocked his global estimate this year, while it laid off 10 percent of its workforce in an effort to cut costs in May, and its chief executive Sebastian Siemiatkowski announced 570 employees on LinkedIn.

But the audit of financial statements for 2021 Clarence Australia conducted by Ernst & Young and submitted to the local regulator, revealed concerns that the Australian unit may not survive.

Accounting figures showed Klarna Australia posted a 12-month net loss of $56 million, four times the figure at the time of its national launch in 2020, when it reported a loss of $14 million.

The company also had a net asset deficit of more than $70 million as of December 31 last year, and an audit revealed the Stockholm parent company was forced to prop up the Australian arm.

Ernst and Young partner Michael Byrne said during the audit that the operating losses and shortfall in net assets created a material uncertainty “that may cast serious doubt on the group’s ability to continue as a going concern”.

However, three members of Klarna’s board, which includes Mr Siemiatkowski, who oversees the Australian business, said the company predicted further improvements in operating results in the coming years, according to notes accompanying the audit.

“A letter of support has been received from the company’s parent organization for at least 12 months from the date of signing this report,” the Aug. 19 statement said.

The Commonwealth Bank owns a 5 percent stake in Klarna after investing $300 million ($433 million) in 2019 and 2020.

Payments expert Brad Kelly said despite CBA’s $400 million investment, Klarna’s entry into Australia’s buy-now-pay-later (BNPL) market was an “absolute failure” with bad debts exploding and marketing spending exploding .

“It shows a business that was burning through money, so everyone else peaked last December and they were going down the toilet,” he told news.com.au.

“So Zip and Afterpay were doing victory laps and their share prices were jumping, while Klarna was burning money and getting nowhere – at least Afterpay and Zip got some transactions, but Klarna seems to be going backwards.

“So they failed to get a foothold in the market despite the CBA investing in them and it failed miserably and the question is what happens now? It’s catastrophic and I don’t know if it can be saved.”

Mr Kelly warned that businesses and their owners could be left stranded in Australia if the company fails.

“Traders are in danger, if you buy now, you won’t be able to pay later. If the seller has not received payment for the goods shipped or purchased, he may be an unsecured creditor,” he said.

“What happens if the merchant is not compensated and becomes an unsecured creditor?”

He added that Klarna’s woes were a reflection of a wider trend in the sector, with warnings that there are potential “massacre” is coming as BNPL suppliers are burning cash, bad debts are increasing and customers are abandoning the service.

Popular providers like Afterpay and Zip are facing huge pressure in the current economic climate, with Zip shares plummeting an extraordinary 76 percent this year, so far Afterpay posted staggering mid-year losses just months after its $39 billion acquisition.

The Klarna Australia audit also found merchant and consumer commission income fell 71 per cent to just $3.1 million in 2021, down from $10.8 million the previous year.

In 2020, the amount of loan losses also decreased from $169,271 to $8.5 million, while a whopping $27 million was spent on marketing.

The accounts also showed that Klarna had just 1.1 percent of BNPL’s national market share, according to one expert.

“It’s a catastrophic loss, they’re burning money with marketing and getting absolutely nowhere,” Mr Kelly added.

“They’re the smallest of the little ones, but they do a lot of damage on their way to young women because I think that’s what they’re all about, fashion and beauty, and they end up in over their heads with debt.”

Jacqueline Liddell was one of the women news.com.au spoke to recently who was “drowning” in the $40,000 debt she had accumulated “addiction” to buy now, pay latera world into which her love of fashion drew her.

Mr Kelly said Klarna was a “failed experiment”, adding that the overall market appeared unsustainable, with no profits, no path to profitability and increasing pressure from regulators.

Globally, it’s a precipitous drop in the fortunes of the payments giant, which was previously profitable until 2019, when it ramped up its spending to expand, and earlier this year it reported a staggering pre-tax loss of $850 million for the overall brand.

Originally published as Buy now, pay later Supplier Klarna Australia reports ‘catastrophic’ loss of $56 million in 2021