A recent article by BankingDay points to significant financial issues with Klarna’s Australian operations. According to an official audit of their 2021 financials by Ernst & Young, the Buy Now, Pay Later (BNPL) company had a more than A$70 million net asset deficiency on Dec. 31 of last year, which in accounting language, means that their liabilities exceeded their assets.
Facts about Klarna Australia from BankingDay include:
- The company posted a 12-month net loss of $56 million in 2021, four times that of its net loss of $14 million in 2020.
- The amount of merchant and consumer commission revenue fell to $3.1 million in 2021 from $10.9 million in 2020.
- Credit loss charges ballooned from $169,271 in 2020 to $8.5 million in 2021.
- From 2020 to 2021 the marketing budget doubled to $27 million.
The news is alarming, but not surprising.
We’ve been tracking Australian Buy Now, Pay Later firms since 2019 and always questioned the sustainability of a model that lends with little restraint. Maybe this is why Australian BNPL stocks are trading for the price of a Starbucks coffee? Certainly, Klarna’s Australia arm needs to turn things around, especially given the growing competitive landscape of BNPL lending.
Overview by Ben Danner, Research Analyst at Mercator Advisory Group.