One of Australia’s largest banks put millions into a buy now, pay operator later, but it has since laid off 10 percent of its workforce and its valuation has fallen by $30 billion.
A buy now, pay later provider that Australia’s largest bank has invested millions in has been hit by a dramatic fall in value, signaling more warnings about the beleaguered sector.
Swedish company Klarna had cut its latest fundraising from $1 billion ($A1.44 billion) to $500 million ($A722 million), but its valuation of $15 billion ($A21.6 billion) has fallen compared to just reported a year ago The Wall Street Journal (WSJ).
Just last month, the WSJ had reported that Klarna’s valuation was around $30 billion ($A43.3 billion) in seeking new investments, but that has now been halved, a sign of the current punishing environment for tech companies, as well as the carnage that the BNPL sector is ravaged.
It’s also a blinding drop in value compared to June 2021, when Klarna, announced last year as Europe’s most valuable start-up, raised money from Japanese venture capital fund SoftBank at a valuation of $US46 billion ($A66.4 billion).
Klarna laid off 10 percent of its workforce last month in a bid to cut costs, with CEO Sebastian Siemiatkowski advertising 570 employees who had been laid off on LinkedIn.
Commonwealth Bank owns a 5 percent stake in Klarna after investing $300 million ($A433 million) in 2019 and 2020.
If Klarna is now worth $15 billion ($A21.6 billion), as has been reported, CBA’s stake is still worth $750 million ($A1.08 billion), but that’s a whopping 67 percent drop in $ It was worth 2.3 billion ($A3.3 billion) 12 months ago.
But CBA chief Matt Comyn has continued to support Klarna, adding that it stood out for its ability to deliver leads to traders, which has been in business for 17 years.
Klarna reported a quarterly loss of SEK 2.5 billion ($357 million), which was three times higher than in the first three months of 2021.
Grant Halverson, the founder and CEO of payment advisory firm McLean Roche, said a cut in funding shows “reluctant investors.”
“The $15 billion valuation drops Klarna out of the top 20 unicorns and places it in 23rd – not now Europe’s number one fintech – some are falling out of favor,” he said. “Klarna laid off 10 percent of its staff as a cost-cutting measure. It will have to do much more than this.”
The company’s borrowing costs have risen to their highest levels on rising interest rates, he added.
“Klarna is already completely unprofitable, losses doubled to $487 million ($A701 million) in 2021, while losses rose $250 million ($A360 million) in Q1 2022 – it’s all going in the wrong direction,” he said.
“A major investor in Klarna is SoftBank’s, its Vision Fund recently posted a record investment loss of 3.5 trillion yen ($US27 billion) for its last fiscal year. The Japanese giant is fighting for its own survival – this will affect its ability to invest.”
Net Interest financial analyst Marc Rubinstein has also estimated that based on average loan balances, Klarna’s bad debt rose from 4.6 percent in 2018 to nearly 12 percent at the end of last year.
Siemiatkowski has previously said that higher bad debt is the cost of expanding into new markets and attracting new customers
The other key issue that markets will focus on is an impending recession, with BNPL debt being totally unacceptable and companies having very little time to correct it, Mr Halverson added.
A Klarna spokesperson said the company would not comment on fundraising or valuation speculation.
Experts have previously predicted potential “bloodbath” for the industry, buy now, pay later, as providers burn cash, bad debts rise and customers withdraw from using the service — a model they say is unsustainable.
Earlier this month, the founder of a buy now, pay later provider called Sezzle lost most of his $800 million fortune after the company’s stock was bombed, prolonging an industry nightmare.
Last June, US founder Charlie Youakim experienced a boom in Sezzle’s shares, which were worth $9.20, but they plunged 96 percent, falling to just 40c.
Australian BNPL providers have also suffered from falling stock prices. Overall, the sector lost a staggering $A1.05 billion in 2021, worrying investors and causing stock prices to plummet this year.
Shares of Zip have plunged in the past 12 months and are currently trading at 51c, compared to $14.53 in May last year.
The BNPL provider previously had a market cap of around $A6 billion – which was more than retailer JB Hi-Fi – but this has since plummeted to about $A600 milliona staggering 87 percent drop in share price from 2021.
The Australian company’s first results since its acquisition by US firm Block showed it
reported a net loss of $345.5 million for the six months ended December 31, 2021.
Andrew Brown of investment firm East72 has long been against the BNPL industry and thinks it could happen soon reach a crunch point†
“The bad debt experience is terrible,” he told The Sydney Morning Herald†
“The simple fact of life is this: BNPL business as a standalone business means you’re going to attract a large number of people who are unable to repay their money, especially if you don’t have proper credit checks in place.”
Venture capitalist Bill Gurley has also warned that tech company employees accustomed to “Disney-esque array of experiences/expectations in high-tech companies” should undergo a reality check.
“For workers who only know this world, the idea of layoffs or cost reduction (or being asked to come to the office) is downright heresy…” he said.
“Unfortunately, you can’t ignore the fact that if your business isn’t cash-flow positive and capital is expensive right now, you’re living on borrowed time. ‘Culture’ doesn’t matter if your company isn’t there.”
#Billions #lost #buying #paying