Klarna’s profitability improvements set it up for a strong IPO next year
By the numbers: Klarna’s total revenues increased 23% YoY during the first nine months of 2024, per its financial statement.
- Gross profit increased 16% YoY to SEK 9.711 billion ($915 million).
- And its net loss fell to SEK 118 million ($11.11 million), a strong improvement from SEK 1.952 billion ($183 million) during the same time in 2023.
Why it matters: Earlier this month, Klarna filed to go public. It’s expected to start trading in the first half of 2025. As it’s prepped to go public, it’s been focusing on achieving long-term profitability.
While Klarna still had a net loss for the first nine months of the year, it posted a profit for Q3, with a net income of SEK 216 million ($20.35 million).
Here are some factors that helped Klarna improve its profitability:
- Klarna’s revenue take rate for the period was 2.56%, up 18 basis points YoY. This can be attributed to a jump in payments volume as well as growth in value added services.
- Adjusted operating expenses declined 2% in the first nine months of 2024. AI helped cut the company’s marketing agency spend and customer service costs: Its AI assistant handles 2 in 3 customer service chats.
But there are still some areas dragging down profitably. Klarna’s consumer credit loss rate was 0.44%, compared with 0.26% in 2023. Its funding costs also increased 67% YoY.
What’s next for Klarna:
- Pushing banking products. Klarna rolled out cash-storing accounts in August and has since gained 1.6 million users. Klarna’s cash-back offers helped spur adoption, as rewards are put directly in these accounts.
- Growing in-store partnerships. Klarna expanded its partnership with Adyen, bringing the BNPL option to more in-store terminals. It also scored tie-ups with Apple Pay and Google Pay.
Our take: Klarna has made smart moves along its profitability journey. Investing in AI to cut expenses, launching new value-added services, and growing payments volume in less saturated BNPL segments like in-store are all setting up Klarna for a strong IPO.
These efforts will be especially important for Klarna as the BNPL boom fades, leading to slowing user growth: The number of US BNPL users will rise just 6.9% YoY in 2024, compared to 17% in 2023 and 20.5% in 2022, per our forecasts.
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