Commonwealth Bank’s investment in BNPL’s Klarna provider loses billions as valuation falls sharply

One of Australia’s largest banks has invested millions in an operator to buy now, paying later, but has since laid off 10 percent of its staff and its valuation has fallen by $ 30 billion.

The supplier to buy now, a payment later in which Australia’s largest bank pours millions, has been hit by a dramatic drop in value, signaling more warnings in the besieged sector.

Swedish company Klarna has reduced its latest fundraising from $ 1 billion ($ 1.44 billion) to $ 500 million ($ 722 million), but its estimate of $ 15 billion ($ 21.6 billion) has fallen compared to just a year ago, they reported The Wall Street Journal (WSJ).

Just last month, WSJ Klarna had said it was valued at about $ 30 billion ($ 43.3 billion) in search of new investment, but has now halved, a sign of the current punitive environment for technology companies but also for the carnage the BNPL sector.

This is also a staggering drop in value compared to June 2021, when Klarna, which was named the most valuable start-up in Europe last year, raised $ 46 billion from Japan’s venture capital fund SoftBank (66.4 billion dollars).

Klarna laid off 10% of its workforce last month in a bid to cut costs, with CEO Sebastian Semyatkowski advertising 570 employees who were laid off on LinkedIn.

Commonwealth Bank holds a 5% stake in Klarna after an investment of $ 300 million ($ 433 million) in 2019 and 2020.

If Klarna now costs $ 15 billion ($ 21.6 billion), as reported, the CBA’s share is still worth $ 750 million ($ 1.08 billion), but that’s an incredible 67 percent drop from $ 2.3 billion ($ 3.3 billion) cost 12 months ago.

But CBA chief Matt Comin continued to support Klarna, adding that it is distinguished by its ability to provide potential customers to traders, as it has been in operation for 17 years.

Klarna reported a quarterly loss of SEK 2.5 billion ($ 357 million), which is three times higher than in the first three months of 2021.

Grant Halverson, founder and CEO of the payment consulting firm McLean Roche, said the cut in funding showed “reluctant investors.”

“The $ 15 billion estimate puts Klarna out of the top 20 unicorns and puts her in 23rd place – now not number one in Europe in financial technology – some drop out,” he said. “Clarna has cut 10 percent of its staff as a cost-cutting measure. He will have to do much more than that. “

The company’s borrowing costs have risen to their highest level with the impact of rising interest rates, he added.

Klarna is now completely unprofitable, losses … in 2021 (jumped) to 831 million USD, while losses in the first quarter of 2022 jumped by 250 million USD (360 million USD) – everything goes wrong road, “he said.

“A major investor in Klarna is SoftBank, its Vision Fund recently reported a record investment loss of 3.5 trillion yen ($ 27 billion) in its last fiscal year. The Japanese giant is fighting for its own survival – this will affect its ability to invest. “

Financial analyst Mark Rubinstein of Net Interest also estimated that based on average loan balances, Klarna’s bad debts rose from 4.6% in 2018 to almost 9% at the end of last year.

Mr Siemiatkowski said earlier that higher bad debts were the price of expanding into new markets and attracting new customers.

The other key issue that markets will focus on is the looming recession, with BNPL’s bad debts completely unacceptable and companies having very little time to correct this, Mr Halverson added.

A Klarna spokesman said the company would not comment on fundraising speculation or valuation, but had been profitable for 14 years out of the 17 years it has been in operation.

Experts have had before projected potential “valve” to buy now, pay later sector as suppliers burn cash, bad debt bubble and customers withdraw from using the service – a model they don’t think is sustainable.

Earlier this month, the founder of the supplier bought now, paying later, called Sezzle lost most of its $ 800 million condition after the company’s shares bombed, continuing the nightmarish movement for the sector.

Last June, US founder Charlie Yuakim boosted $ 9.20 in Sezzle shares, but they fell 96 percent to just 40 cents.

BNPL’s Australian suppliers were also affected by sliding stock prices. Overall, the sector lost a staggering $ 1.05 billion in 2021, sparking investor concern and seeing a drop in stock prices this year.

Shares of Zip have fallen over the past 12 months and are currently trading at 51c, compared to $ A14.53 in May last year.

The BNPL provider previously had a market capitalization of about $ A6 billion – more than a JB Hi-Fi retailer – but has since fell to about $ 600 milliona staggering 87 percent drop in stock price compared to 2021

Afterpay publishes amazing loss in the middle of the year only months after it was acquired for $ 39 billion.

This was shown by the first results of the Australian company after its takeover by the American company Block

recorded a net loss of $ 345.5 million for the six months to December 31, 2021.

Andrew Brown of the investment company East72 has long been against the BNPL industry and believes it may soon be reaching a crisis.

“The experience of bad debt is appalling,” he said IN Sidney Morning Herald.

“The simple fact of life is this: BNPL business as a stand-alone means that you will attract a large number of people who are unable to get their money back, especially if you do not have reliable credit checks.”

Venture capitalist Bill Garley also warned that employees of technology companies used for “Disney-style experiences / expectations in high-tech companies” have been screened.

“For employees who only know this world, the idea of ​​cutting or cutting costs (or being asked to enter the office) is a heresy,” he said.

“Unfortunately, you can’t” wish “on the fact that if your company isn’t positive about cash flow and capital is expensive, you’re living on credit. “Culture” will not matter if your company is not around.

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