Klarna Q2023 XNUMX: The results They are the latest in a growing list of evidence that the Swedish fintech giant is evolving from a loss-making unicorn to a durable company ready for the public markets.
It wasn't long ago that Klarna's valuation dropped by around 85%. At the time, the revaluation made its promotion look a bit misleading, calling into question the value of the company.
Things have changed quickly. While Klarna's numbers looked like those of a standard unicorn at the end of 2022 (replete with unappetizing losses), the company managed to post stronger results as the year progressed, somewhat masked by its full-year metrics.
That avalanche of good news continued this year, with the company reporting improved credit results and even a profitable month. And it seems that after laying off staff and working to control costs, the good news train continues to move at the company.
If you're interested in BNPL as a category, e-commerce, or even just fintech in general, you have to understand Klarna's performance: Work!
A story that gets better
In the third quarter, Klarna reported revenue of 6.000 billion crowns ($549,9 million), up about 30% from 4.600 billion crowns ($421,6 million) in the third quarter of 2022. The company also reported an operating result of 130 million crowns ($11,9 million), a huge improvement over the 2.120 billion crowns ($192,6 million) pérdida a year ago.
How did the company increase revenue? y become profitable in just one year? Several efforts culminated in the improved figures seen:
Klarna Q2023 XNUMX: The results They are the latest in a growing list of evidence that the Swedish fintech giant is evolving from a loss-making unicorn to a durable company ready for the public markets.
It wasn't long ago that Klarna's valuation dropped by around 85%. At the time, the revaluation made its promotion look a bit misleading, calling into question the value of the company.
Things have changed quickly. While Klarna's numbers looked like those of a standard unicorn at the end of 2022 (replete with unappetizing losses), the company managed to post stronger results as the year progressed, somewhat masked by its full-year metrics.
That avalanche of good news continued this year, with the company reporting improved credit results and even a profitable month. And it seems that after laying off staff and working to control costs, the good news train continues to move at the company.
If you're interested in BNPL as a category, e-commerce, or even just fintech in general, you have to understand Klarna's performance: Work!
A story that gets better
In the third quarter, Klarna reported revenue of 6.000 billion crowns ($549,9 million), up about 30% from 4.600 billion crowns ($421,6 million) in the third quarter of 2022. The company also reported an operating result of 130 million crowns ($11,9 million), a huge improvement over the 2.120 billion crowns ($192,6 million) pérdida a year ago.
How did the company increase revenue? y become profitable in just one year? Several efforts culminated in the improved figures seen:
- Better acquisition rate: Klarna's gross merchandise volume rose 22% to 242,8 billion crowns ($22,26 billion) from $199 billion ($18,23 billion) in the third quarter of 2022. And its acquisition rate ( measured as revenue divided by GMV) increased to 2,47% in the third quarter of 2023 from 2,31% a year ago. Higher GMV (Gross Merchandise Value) and better take rate helped the company increase its revenue.
- Cost drop: Klarna's "total operating expenses before credit losses" decreased to 4.500 billion crowns ($412,4 million) in the third quarter of 2023 from 4.800 billion crowns ($439,9 million) a year earlier. The company's “adjusted operating expenses before credit losses” fell to 4.100 billion crowns ($375,8 million) from 4.200 billion crowns ($384,9 million) a year ago.
- Lower credit losses: The company did well in the latest quarter, with its credit losses narrowing to 800 million crowns ($73,3 million) from 1.500 billion crowns ($137,5 million) in the third quarter of last year.
Taken together: Better GMV, higher acquisition rate and strong revenue growth combined with lower costs and lower credit losses meant Klarna's “cost-to-income ratio” fell to -83% in Q2023 116 from -2022% in the third quarter of XNUMX.
The numbers look even better when you take into account the adjusted results: Adjusted operating results amounted to 478 million crowns ($43,8 million) in the quarter, compared to a loss of 1.560 billion crowns ($143 million). dollars) a year ago.
It's a good idea to ask yourself how Klarna did it. Most private companies tend to post huge losses in the name of growth, so it's rare to see a company as big as Klarna increase its revenue by 30% and turn a profit.
It seems that the company's own efforts to improve its situation played a role. Here's how the company described its credit loss performance in the third quarter:
Nuestro desempeño en pérdidas crediticias mejoró un 46% interanual, lo que refleja mejoras en la precisión y exactitud de nuestros modelos. Las pérdidas crediticias como porcentaje del GMV se redujeron un 56 % interanual, lo que destaca cómo Klarna continúa creciendo mientras toma las decisiones crediticias correctas para nuestros consumidores.That scale of change in credit losses as a fraction of GMV in a single year is pretty crazy. It's not sure whether this set of results should be praised or seen as a condemnation of how risk was handled a year ago, but it doesn't matter: Klarna now looks very strong.
Still, that's only part of the improvement in their results. The best credit results do not generate income; In fact, one could argue that stricter credit standards could limit the growth of a company like Klarna. (At the expense of profits, of course).
There is one important factor contributing to this streak of good results: Klarna's bet on the United States is paying off. The company said its U.S. business “achieved its fourth consecutive quarter of profits, with GMV rising 46% year-over-year” in the third quarter. This is a lot of implied profitable growth and, given the relative strength of the US economy compared to other regions, it is likely to be a major driver of Klarna's current brilliance.
So how much is it worth?
While waiting for Klarna's eventual IPO, we have to worry about its current value. During its last fundraising, Klarna was worth $6.700 billion. So if you annualize its Q2023 2.200 revenue, you get a figure of around $3 billion. Klarna likely has a big holiday quarter underway right now, so the revenue figure is probably too small. Still, at this admittedly conservative run-rate revenue figure, the company is worth around XNUMXx its current top line.
That's a lot? Is it little? A look at the price-sales multiples of the main public financial technology companies, Block and PayPal, gives us ratios of 1,42x and 2,16x, respectively. That said, Block's revenue increased 16% in the third quarter (excluding bitcoin trading revenue), while PayPal's net income increased 8% over the past year.
So, Klarna is growing its revenue faster than either of these two companies and its price isn't too far above them if you follow this metric. That allows us to tweak the math a bit and predict that if Klarna can maintain its current trajectory for a quarter or two, it should be able to defend its most recent valuation in the private market even during a period of depressed fintech prices.
But you can claim: “Affirm is a more direct comparable to Klarna,” and it is true. It trades at 4,17 times trailing earnings and has enjoyed a nice boost in its valuation thanks to its recent partnership with Amazon. With broader fintech players in the 2x range and Affirm at 4x, Klarna feels its pricing is neutral at the moment.
If it registers a little more growth, we could start talking about a higher value initial public offering. Not bad for a company that suffered one of the most dramatic falls in memory. The lesson from Klarna is that a single defeat is not a death sentence.
