This analysis was first published in SvD Näringsliv, in Swedish, on June 17th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
Klarna’s valuation is reportedly collapsing in the increasingly tough climate for tech companies. But what does that actually mean for the company? SvD’s tech analyst Björn Jeffery explains.
What is going on at Klarna?
Klarna is a company that has been saddled with large losses since 2019. As growth has accelerated, losses have ballooned, because investments and an appetite for more risk have contributed to high costs. This is not unique to Klarna — it was a common strategy for tech companies until late 2021, when the market started to wobble. When the stock market — and particularly listed companies in similar businesses, like Affirm — began to fall, the world’s interest in growth quickly swapped for lower risk and profitability.
A shift like that takes time, and has to be financed along the way. It’s in this process that the Wall Street Journal now reports Klarna is considering accepting a valuation of around $15 billion (roughly SEK 153 billion) — significantly lower than the $45.6 billion the last investment round valued the company at in 2021. The year before that, in 2020, the valuation was just over $10 billion, which clearly illustrates how fast things have moved up. By comparison, Affirm’s market cap has fallen more than 82 percent since the start of the year.
What does this mean for the company and its employees?
Taking in money at a lower valuation than before is complicated for several reasons. The valuation affects the staff’s option programs, and it’s possible that several of them will now be worthless. That would mean Klarna’s employees receive significantly lower compensation than originally expected. In similar situations at a company like Amazon, staff have been compensated in other ways — but that too can be costly.
Dissatisfaction can also spread among existing shareholders, who now watch their ownership stake drop in value. As part of accepting a lower valuation, tougher demands may be set on costs, which can lead to layoffs — something Klarna has already started to do.
How serious is it really?
Klarna’s formal name is “Klarna Bank AB”, and seen as a bank they have some challenges ahead. Cash flow in their latest quarter was minus SEK 7.3 billion and credit losses topped SEK 1.1 billion.
Laying off staff may be necessary to appease certain investors, but it’s not personnel costs that primarily drive the losses in the business.
Now, Klarna is a different kind of bank than, say, Handelsbanken or Swedbank, so a direct comparison isn’t entirely relevant. But the reported valuation may suggest that there are question marks around the value of the core business — even with a slimmer cost base and lower growth ambitions.
What happens now?
Klarna’s management and owners need to decide how they want the business to be financed going forward. A new investment at a lower valuation is a big decision, but may be necessary to keep the business running. Interest in investing in Klarna has historically been very high, so this is primarily about the valuation. Depending on the demands from new and existing shareholders, they may also need to cut costs further or lower growth ambitions.
If I shop at Klarna, or have my savings there, do I need to worry?
Because Klarna is a bank it’s covered by the government deposit guarantee, just like the other Swedish banks. Klarna going bankrupt is very unlikely. So there’s no reason to worry about your savings there at present.
