They’re clearly a sensitive bunch at Klarna, the Swedish “buy now, pay later” (BNPL) firm. The privately owned company’s value, as measured by the price at which it raises fresh capital, has just crashed by 85% from $45.6bn (£38.3bn) a year ago to $6.7bn today, but management would like you to think a veritable triumph has occurred.
It was a testament to Klarna’s strength, said chief executive Sebastian Siemiatkowski, that $800m of cash arrived from investors this week “during the steepest drop in global stock markets in over 50 years” – a questionable statistic, incidentally, given what happened in 1973-74, 2001-03 or even 2008.
Michael Moritz, partner at Sequoia, one of the loyal backers, was rolled out to argue that it was perversity, or timidity, on the part of other investors that had caused the plunge in valuation. “The shift in Klarna’s valuation is entirely due to investors suddenly voting in the opposite manner to the way they voted for the past few years,” he said. Eventually, investors would “emerge from their bunkers” and give Klarna and others “the attention they deserve”.
Well, OK, it’s definitely true that the investment world in general, not just Elon Musk at Twitter, has had a re-rethink about tech valuations. Klarna, which has been lossmaking for the past three years as it pursues rapid expansion in the US, is in the eye of that particular storm. But, come on, it would be equally silly to pretend that life hasn’t changed in a few fundamental ways for BNPL firms.
Apple is about to park its colossal balance sheet on the terrain with the launch of a product for iPhone users in the US in the autumn. Conventional high street banks, too, increasingly want a slice of the action. Meanwhile, consumers are under the cosh, raising the risk of bad debts. In the UK, a vanguard market for BNPL products, tighter regulation looks nailed-on in the form of affordability checks and a right for consumers to appeal to an ombudsman. The general regulatory mood is to control a new and breezy form of unsecured credit before it jumps from low-ticket online shopping items to essential stuff such as utility bills.
Klarna is as well equipped as any specialist to cope with new obstacles, but it would save itself angst by acknowledging that investment appetites don’t just blow around with the breezes, but sometimes also reflect hard-headed assessments of risk and reward.
Remember that Lloyds Banking Group, the UK’s biggest bank, made profits of £6.9bn last year, as opposed to Klarna’s losses, and is still worth only £29bn ($35bn). In that context, the $45.6bn valuation on Klarna in last year’s SoftBank-led fundraising was an aberration – a function of extremely frothy conditions. Klarna’s price-tag is still up threefold from 2018, so it is doing OK, but it’s time to let go of last year’s dreams. The road looks harder from here.
A Channel 4 report MPs really need to read
We wait to see if the government’s fixation with privatising Channel 4 survives a change of prime minister. In the meantime, MPs on the culture select committee would do everybody a favour if they demanded to see the full details behind a curious tale referenced by Alex Mahon, the channel’s chief executive, in evidence on Tuesday.
The Department for Digital, Culture, Media and Sport, she said, would have preferred different wording in Channel 4’s yet-to-be published annual report “particularly about our future financial sustainability”. The questions, said Mahon, were “about whether our wording was in line with government policy”.
The government gets first sight of the annual report, as it does with the BBC, but it would be highly unusual to interfere in a document signed off by the directors and the auditor. The department says it was highlighting language that “could be interpreted as going against the corporation’s commitment … to refrain from campaigning against privatisation”.
One would like to see this supposedly inflammatory language, so we can judge for ourselves. The deep problem, one can speculate, is that operational numbers made a nonsense of the narrative from Nadine Dorries, culture secretary, that Channel 4 is somehow in financial peril. It really isn’t. The numbers announced in May were excellent: advertiser-funded Channel 4 made a record surplus of £101m in 2021 on record revenues of £1.2bn and ended the year with a cash balance of £272m, the highest in a decade.
Therein lies the silliness of the privatisation plan. Quibbling over a few words doesn’t make it better.