Klarna posts first quarterly profit in four years amid a boom in demand

Klarna has posted its first quarterly profit in four years amid huge demand from shoppers ahead of the Christmas period.

The Swedish buy-now-pay-later (BNPL) giant, once Europe’s most valuable start-up, reported a profit of £9.6m for the third quarter of 2023, after reporting a loss of £9.6m a year earlier 156 million had suffered.

It comes amid reports that Klarna is preparing to go public, with the company said to be laying the groundwork for an IPO in London or New York.

Sales rose 30 percent to £445 million as the 150 million shoppers who use its services around the world increasingly sought to spread payments for their online purchases as rising costs of living put pressure on incomes.

The company also reported that credit losses, money set aside to cover customers who default on their debts, fell 46 percent year-on-year to around £59 million.

“Our growth has accelerated and we will build on this momentum with further investments to create value for both our consumers and merchants,” said Klarna CEO Sebastian Siemiatkowski.

The company enjoyed several years of profitable trading after its founding in 2005, but ran into trouble in 2018 as consumer spending declined.

Last year the group’s valuation was cut from £37 billion to £5.4 billion and the group was forced to cut jobs and office space to cut costs.

But the return to profit provides a valuable boost for Klarna, amid reports it has set up a British holding company in preparation for a stock market listing in London or New York – which could value the group at as much as £12 billion.

It followed comments from Siemiatkowski, 42, in August when he said the company’s three conditions for going public had been met. These would be located in the US, have a sustainable business model and significant growth potential.

Klarna’s business model offers customers a way to spread purchases across multiple payments at leading retailers including clothing company Boden, takeaway restaurant Deliveroo and fashion retailer H&M.

But BNPL’s services have come under intense criticism from campaigners and MPs who raise concerns that it is leaving consumers, especially young people, with unsustainable debt.

Last week, a report from the Financial Conduct Authority (FCA) revealed that more than a quarter of regular BNPL users have missed a bill or debt repayment in three of the past six months, affecting a total of 529,200 people.

And 48 percent – ​​​​940,800 – also had an expensive credit product such as a personal loan. More than half had increased their credit card debt in the past year, representing about 1 million consumers.

Despite mounting pressure to crack down on BNPL, it was reported in July that the Treasury had shelved plans to bring companies like Klarna under the FCA’s supervision.