FinTech Correction Or Economic Doom? Klarna’s Troubles And Mass Lay-Offs!

Klarna and the beginning of an economic doom
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In 2021, the Swedish fintech Klarna was valued at around $46 billion making it the highest valued European FinTech. The buy-now-pay-later FinTech with more than 6,500 employees saw huge losses in 2021 and is confronted with reluctant investors, the Wall Street Journal reports. Sebastian Siemiatkowski, Klarna’s CEO and co-founder, announced a strict austerity program and the mass lay-off of 700 employees. The signs of a correction and crisis have been seen for weeks with falling prices of stocks and cryptos. We may be facing a valley of tears.

Klarna became Europe’s most valuable financial-technology startup in June when SoftBank Group Corp.’s Vision Fund 2 led an investment in the company that valued it at $45.6 billion.

Last year, Klarna’s net loss widened to $705.7 million, while credit losses jumped as the company grew its consumer base and expanded geographically. On Money, Klarna announced an austerity program including the layoff of 700 employees. According to WSJ, Klarna is aiming to raise up to $1 billion from new and existing investors in a Goldman Sachs-led deal that could value it in the low $30-billion-range post-money. That would represent a roughly 30% drop from the previous round.

Earlier this month, Klarna‘s strategic investor SoftBank posted its worst annual loss, more than $13 billion, due to the collapse in values of many of its tech investments.

The Klarna situation would only be an example of the struggles facing the tech investing world. The share price of Nasdaq-listed Affirm Holdings Inc., a Klarna competitor, is down 75% this year, giving it a market value of $7.2 billion.

The Klarna troubles may be just the beginning of a correction of the booming FinTech sector, which has been characterized by skyrocketing valuations and gigantic growth over the past five years. However, it may also signal the beginning of an economic downturn if not doom ante portas.

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