Klarna shows that BNPL growth is not cheap

Welcome to TechCrunch+ Tuesday

Swedish fintech giant Klarna was doing well before the pandemic, but today, it’s a mega-unicorn: In June 2021, it reached a $45.6 billion valuation after raising $639 million.

Much of this growth was fueled by U.S. consumers, which makes sense, considering that most of us still can’t cover a $1,000 emergency expense. Today, BNPL can be used to facilitate the purchase of a pizza oven — or just a single pepperoni pie.

Growth is good, but like the James Brown song, Klarna is paying the cost to be the boss: The BNPL leader generated $1.375 billion in 2021 revenue, but it had “a $658 million operating loss and a $709 million net loss,” reported Alex Wilhelm in The Exchange.

“It may bear out that Klarna’s high spend in 2021 set the groundwork for a strong 2022, with the company’s cost growth slowing and its revenue growth maintaining pace,” wrote Alex.

Smaller competitors like Affirm and Afterpay are in similar straits: Affirm is trading around $35 per share this morning, a long way from its 52-week high of $176.65.

Amid shrinking profits for BNPL companies and a cooling stock market, I asked Alex if he expected any consolidation, and he outlined two scenarios: one where smaller players join forces and another where platform fintechs acquire BNPLs to augment their service offerings.

“Regardless, with falling BNPL corporate valuations and lots of expensive competition amongst existing players large and small, I suspect that we’ll see at least a handful more tie-ups and acquisitions before the year is out,” he said.

“Everyone has cash, and when potential acquisition targets get cheaper, who doesn’t love a deal?”

Thanks very much for reading TC+ — have a great week!

Walter Thompson
Senior Editor, TechCrunch+
@yourprotagonist

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