Consumers are “starting to cut back” on their discretionary spending, says Klarna’s CEO
Its consumer spending Proven flexibility Despite high interest rates and high inflation rates.
Klarna That’s changing, says CEO and co-founder Sebastian Siemiatkowski.
“People’s savings are down, and their credit card debt is up again,” Siemiatkovsky told Yahoo Finance at its investment conference on Tuesday. “They’re starting to cut back on some discretionary spending. It’s definitely a difference.”
Siemiatkowski’s Klarna is an industry leader in buy now, pay later (BNPL), which allows shoppers to use installments to pay for their purchases, often interest-free. Typically, BNPL companies make money by charging merchants a small fee for each transaction.
Americans will buy $72 billion worth of products and services using BNPL services this year, according to research firm Insider Intelligence, which estimates that total could reach $125 billion by 2027. There are now more than 100 BNPL companies globally, according to S&P Global Market Intelligence 451 companies. research.
Despite the dual challenge of consumers cutting back on spending and rising interest rates, Siemiatkovsky said business at Klarna remains strong.
He added: “Our losses have decreased.” “We got back to profitability this quarter, so it looks pretty good from that perspective.”
Stockholm-based Klarna on Monday reported operating profit of 130 million Swedish krona, or $12 million, for the three months through September. This is the company’s first profitable result since the second quarter of 2019. Revenues rose by 30% to 6 billion kroner. Gross merchandise volume – or the value of merchandise purchased through Klarna – was up 22% year-on-year.
Dan Dolev, a senior analyst at Mizuho, says he is “very optimistic” about the future of the BNPL industry. Has a Buy rating on confirmation (AFRM), which is Klarna’s competitor.
“I think this could pose a huge threat to credit cards in the long term,” Dolev said. First, there is technology. Everyone now has access to smartphones and apps. This is how people buy.”
“And ultimately, especially for companies like Affirm, they have an advantage in underwriting,” Dolev continues. “They have so many data points about people, from where you shop to how you shop. With all that information and data, they can underwrite the risk of whether or not they’ll pay back their money.” In fact, they are better at it than banks.
Looking to the future, Siemiatkovsky says a Klarna IPO is possible as the company gains traction in important markets like the US, where there are now more than 30 million Klarna users. The company, which last raised money at $6.7 billion, is creating a new British holding company that could be a precursor to an IPO. Klarna has no immediate plans to go public, a spokesperson says.
But before a public listing, what if a bank or a large tech company like Apple expresses interest in acquiring Klarna? Siemiatkowski doesn’t rule out that possibility either, but says his company is still in the early days of its corporate journey.
“There is a lot of potential and it is already happening now,” he said.
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Josh Lipton is a broadcaster at Yahoo Finance.