Klarna (KLAR) reported its first earnings since debuting on the New York Stock Exchange in September, exceeding Wall Street’s revenue expectations for the third quarter, according to the company’s earnings release. The buy now, pay later (BNPL) giant’s results offered insights into its growth trajectory and strategy amid evolving market dynamics, even as shares dipped 7% following the announcement.
Here’s how the company performed compared to LSEG estimates:
- Revenues: $903 million vs. $882 million expected
The fintech firm posted revenue growth of 26%, climbing from $706 million in the same period last year. However, the company reported a net loss of $95 million, or 25 cents per share, a decline from the previous year’s net income of $12 million, or 5 cents a share. This shift towards a loss underscores the company’s ongoing investments in growth initiatives and the competitive landscape of the BNPL sector.
Klarna’s growth is significantly fueled by its expansion in the U.S. market, where gross merchandise volume (GMV) surged 43% year-over-year. Overall gross merchandise volume rose 25% to $32.7 billion from $26.2 billion last year. The company attributes this surge to the increasing adoption of its various financial products, including the Klarna Card and “fair financing” options, which offer longer installment plans for larger purchases. These longer-term financing options now carry varying interest rates, a significant contributor to the gains realized in the U.S. market, with GMV more than tripling year-over-year.
Since its introduction in July, the Klarna Card has accumulated over four million customers and accounted for 15% of all transaction volume by October, indicating a strong consumer appetite for the product. Analysts note that the success of the Klarna Card is crucial to the company’s strategy of transitioning from a pure-play BNPL provider to a broader financial services platform.
CEO Sebastian Siemiatkowski highlighted the potential for continued expansion of “fair financing,” noting that it has doubled the number of users year-over-year but only penetrated approximately one-fifth of its merchant base. This untapped potential represents “tons of opportunity” for Klarna, he told CNBC.
“We want to be the one that helps you save time, save money, be in control of your finances and that’s obviously not necessarily what we’ve been associated with,” Siemiatkowski stated, acknowledging the need to build trust and credibility with consumers. The company continues to invest in initiatives designed to improve financial literacy and responsible spending habits among its users.
To further bolster its U.S. growth, Klarna announced that Elliott Investment Management will acquire $6.5 billion of its “fair financing” loans. This strategic move allows Klarna to free up capital and concentrate on product development and market penetration in the U.S.
Klarna reported a 38% increase in merchants, totaling 850,000 compared to 616,000 in the prior year. However, average revenue per active customer declined, while the total customer base reached 114 million. This mixed performance suggests that while Klarna is attracting new users and partners, it faces challenges in increasing revenue per customer, possibly due to increased competition or changing consumer behavior.
Looking ahead to the fourth quarter, Klarna projects gross merchandise volume to range from $37.5 billion to $38.5 billion and revenues between $1.065 billion and $1.08 billion. These projections exceeded FactSet estimates, reflecting management’s confidence in the company’s continued growth trajectory.
Transaction margin dollars, a crucial profitability metric for Klarna’s core business, are forecasted to be between $390 million and $400 million, compared to $281 million in the third quarter. This projected increase suggests that Klarna is making progress in improving the efficiency and profitability of its operations.
Bank of America noted in a client brief that the surge in fair financing might have put a strain on Klarna’s projected transaction margin dollars; however, their estimate for the fourth quarter aligned with the street forecast. “Based on our conversations, we think investors remain cautious on credit-driven growth,” the memo stated.
JPMorgan described the sequential increase in transaction margins forecast for the fourth quarter as “encouraging.” It signals the business’s underlying strength and potential for long-term scalability.
Klarna’s NYSE debut followed a delay in its initial public offering plans in April, attributed to market volatility caused by escalating trade tensions under former President Donald Trump. Since its listing, Klarna shares have experienced significant volatility, reflecting broader market concerns about rising interest rates, inflation, and the potential for a recession.
Adding to these anxieties is the growing apprehension around potentially overvalued AI stocks and a general softening in consumer spending. Since its highs, Klarna shares have seen a value decrease of over one-third in recent weeks.
Siemiatkowski reported that the company has observed no “material differences” in repayment or spending patterns. However, it continues to keep a close eye on the trend of AI taking over numerous white-collar positions.
Klarna has integrated AI into its operations over the years. Siemiatkowski stated in May that the technology, together with natural attrition, had reduced the fintech company’s personnel by 40%.
He claimed that the percentage of natural attrition is as high as 20%.
Klarna is not the only company to do this. Palantir, Salesforce, and Amazon have all issued notices that they plan to reduce their workforce or reduce the rate of hiring because of the rise of AI.
Siemiatkowski emphasized that AI is a key element of the company’s “customer-obsessed” philosophy, noting that the average time to address a customer service matter has decreased to below two minutes due to AI implementations.
Siemiatkowski believes that firms who exclusively employ AI or robots to engage with consumers are making a “big mistake, because you want to have a human connection.” “There’s this tremendous value,” he said.
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/13101.html
