Daily Brief: Klarna Can Put Off Payments, But Not Losses

Daily Brief: Klarna Can Put Off Payments, But Not Losses

over 1 year ago3 mins

Mentioned in story

Klarna reported on Wednesday that its losses ballooned in the first half of the year.

What does this mean?

Klarna got into the buy-now-pay-later (BNPL) game early, and went on to become Europe’s most valuable startup for a time. But now Klarna’s just one of many, which – along with investors’ mounting skepticism about high-growth tech firms – has squashed its valuation to $7 billion, down 85% from last year.

Klarna valuation

Still, the Swedish payments provider has managed to expand into markets like the Czech Republic, Canada, and Greece, all while attracting some 30 million users in the US too. That helped it swell its revenue by 24% in the first half of this year versus the one before, but that’s nothing compared to the 54% uptick in credit losses that came as increasingly cash-strapped customers failed to pay back their loans. Mix in rising borrowing costs and all the expenses that come with expanding, and Klarna’s losses more than tripled in the first half of the year.

Why should I care?

The bigger picture: Pay now, profit later.

Klarna’s competitors don’t just include tech companies like Apple, but also traditional banks like HSBC and Barclays. They’ve recently launched new services that spread the cost of purchases, which should help them hold onto younger customers who prefer pay-later services to traditional credit cards. That could be a lucrative move: GlobalData predicts BNPL transactions will make up 7.1% of all global commerce by 2026, up from 2.7% last year.

BNPL growth

Zooming out: Tighten your purse strings.

It’s no wonder shoppers want to spread out costs: data out on Wednesday showed that inflation in the eurozone hit another record high of 9.1% this August versus last year. And since some economists think that could encourage the European Central Bank to go ahead with a jumbo 0.75% rate hike when it meets next week, folk might find their budgets are squeezed even tighter soon.

Eurozone inflation

Keep reading for our next story...

HP Might Need To Turn Its Results On And Off Again

HP image

HP gave a disappointing – but not surprising – quarterly update earlier this week.

What does this mean?

Looks like PCs are falling out of fashion: industry analyst Gartner said global shipments dropped 13% between April and June, marking the sector’s worst quarter in over nine years. And spare a thought for poor HP, which saw the biggest decline in shipments out of all the companies tracked over that time period. So it’s not a huge surprise that the PC maker saw sales of its consumer computers fall 20% last quarter from the year before, mainly led by sales of its notebooks falling by nearly a third. HP’s printer sales didn’t help either, falling by 6% as supply shortages continued to plague the division. And sure, sales of the company’s commercial PCs rose by 7% last quarter, but that wasn’t enough to save its overall revenue from falling a worse-than-expected 4%.

HP shipments

Why should I care?

Zooming in: Business isn’t booming.

Those commercial PCs have been buoying up HP’s falling consumer sales for a while, but that might soon come to an end: the company said business customers are starting to cut down on spending – and ramping up hiring freezes – to survive in an increasingly dire economy. On top of that, HP said it’s expecting evaporating consumer demand to continue for at least a couple more quarters. So left with little choice, HP cut this year’s profit outlook to below analysts’ expectations.

HP stock
Source: Google Finance

For markets: Investors are logging off.

Rival Dell also gave a disappointing outlook last week, citing many of the same issues that troubled HP. That’s not what investors banked on when they swapped high-flying tech stocks for PC makers earlier this year, keen to snap up their growth at much lower valuations. But they’re heading for the exits now: Dell and HP have seen their stocks fall 13% and 11% in the last month, much worse than the tech-heavy Nasdaq 100 index’s 4% dip.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG