Klarna has reported an operating profit of $18.5 million for the three months to September.
👉 Background: Klarna is one of the OG buy now pay later companies. It launched in 2005 and was around 9 years before Afterpay. During the pandemic, Klarna was on a ride— it raised money at $46 billion USD valuation in 2021.
👉 What happened: But since then, the tech market has softened... and so has Klarna's results. It had to raise more money at a $6.7 billion USD valuation just 12 months later—an 85% drop in just 12 months.
👉 What else: Now, Klarna has reported an operating profit of $18.5 million for the three months to September. And, the main reason for the turnaround is them improving their credit losses by more than 50%.
💡Precision in credit underwriting is not just about managing risk—it's about growing profitability.
💡During the pandemic, Klarna's main aim was to grow, grow, and grow more. That was to continue growing in the face of competition from companies like Afterpay, Zip, and Affirm. So, it's fair to say Klarna wasn't so 'picky' on the type of customers it was lending to.
💡Now, as it plans to list on the public markets in the next year, Klarna needs to prove to investors that it can be sustainable and consistently profitable. This is the same story at Zip, who have been reigning in their credit losses to get to profitability.
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