Dive Brief:

• Buy now, pay later company Klarna was able to shrink its first-half loss this year after a major cost-cutting effort, falling in line with BNPL players industry-wide still reaching for profitability.
• The Swedish company recorded a profit for May during the second quarter, Klarna said Thursday in reporting results. A Klarna spokesperson wouldn’t share that figure but said it was “a small positive (earnings before taxes) result,” compared to a loss the same month the year prior.
• Klarna CEO Sebastian Siemiatkowski told the Financial Times the company is ready for an initial public offering, but is waiting on improved economic conditions. The company spokesperson declined to comment on that matter.

Dive Insight:

Klarna and its major BNPL rivals Affirm and Block-owned Afterpay are grappling with a far different economic environment than the one BNPL enjoyed during the COVID-19 pandemic, creating an uphill battle as they’re pushed by investors to deliver profits.

Klarna was last profitable in 2018. The company’s first-half results “clearly rebut the misconceptions around Klarna’s business model,” Siemiatkowski asserted in a letter to shareholders. “Despite the volatile environment, we have done exactly what we set out to do, showing that we know which levers to pull to get back to profitability.”

Although May’s small profit indicates Klarna is on the path to profitability, a company spokesperson said Klarna doesn’t have a set profitability target to share for the second half of the year. “There will always be some degree of volatility which is why we will see some months will go up and some down, before we stabilize,” the spokesperson said in an email.

Klarna reported a second-quarter loss of 900 million Swedish krona, US$82.1 million. The company reported a first-half loss of 2.1 billion Swedish krona, US$192.9 million, narrowing from 6.4 billion Swedish krona, US$586.8 million, in the first half of last year. 

Last year, Klarna revamped operations and cut 10% of its workforce, or about 700 workers. Reflecting the fintech world’s fall from grace, Klarna’s valuation tanked, too: The company raised $800 million at a $6.7 billion valuation, a steep drop from its $45.6 billion valuation in June 2021. 

In the second quarter, Klarna’s credit loss rate as a percent of gross merchandise volume dropped 49% year-over-year, to .41%. Second-quarter revenue climbed 17%, to 5.5 billion Swedish krona, US$505.3 million. Gross merchandise volume in the quarter rose 14% year-over-year, to 238.6 billion Swedish krona, US$21.9 billion. 

The BNPL company currently has 37 million U.S. customers, a spokesperson said Thursday. Continued growth in the U.S. remains an intense focus for the company, Chief Commercial Officer David Sykes said in June.

Klarna is among the fintech companies leaning heavily on artificial intelligence, tapping it for marketing, customer service and analytics. AI use has helped the company cut costs.