Consumers 'starting to cut back' on discretionary spending, Klarna CEO says
Consumer spending has proven resilient despite higher interest rates and elevated inflation.
Klarna CEO and co-founder Sebastian Siemiatkowski says that is changing.
"People's savings have come down, and their credit card debt has come up again," Siemiatkowski told Yahoo Finance at its Invest conference on Tuesday. "They are starting to cut back on some discretionary spending. It is definitely a difference."
Siemiatkowski's Klarna is a leader in the buy now, pay later (BNPL) industry, which allows shoppers to use installments to pay for their purchases, often interest free. Typically, BNPL firms 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 this total could reach $125 billion by 2027. There are now more than 100 BNPL firms globally, per S&P Global Market Intelligence's 451 Research.
And despite the twin challenges of consumers reducing spending and rising interest rates, Siemiatkowski said business at Klarna remains strong.
"Our losses are down," he said. "We are returning to profitability this quarter, and so it actually looks fairly well from that perspective."
On Monday, Stockholm-based Klarna reported an operating profit of 130 million Swedish kronor, or $12 million, for the three months through September. This is the company’s first profitable result since the second quarter of 2019. Revenue rose 30% to 6 billion kronor. Gross merchandise volume — or the value of goods purchased through Klarna — increased 22% year over year.
Dan Dolev, a senior analyst at Mizuho, says he is “very bullish” on the future of the BNPL industry. He has a buy rating on Affirm (AFRM), which is a Klarna rival.
“I think this could be a formidable threat to credit cards over the long term,” Dolev said. “For one, there is the technology. Everyone now has access to smartphones and apps. This is how people make purchases.”
Dolev continues, “And on the back end, especially for companies like Affirm, they have an advantage in underwriting you. They have many data points on people, from where you shop to how you shop. With all that information and data, they can underwrite the risk of you paying them back or not. In fact, they are better at that than the banks.”
Looking ahead, Siemiatkowski says an IPO for Klarna is possible as the company has gained traction in important markets like the US, where there are now more than 30 million Klarna users. The company, which last raised cash at a valuation of $6.7 billion, is in the process of creating a new British holding company that could be a precursor to an IPO. A spokesperson says Klarna doesn't have immediate plans to go public.
But before a public listing, what if a bank or big tech company like Apple expressed interest in acquiring Klarna? Siemiatkowski doesn’t dismiss that possibility either, but says his company is still in the early days of its corporate journey.
“There is so much potential and it’s really happening right now,” he said.
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Josh Lipton is an anchor at Yahoo Finance.
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