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Commonwealth Bank’s $300m investment in BNPL Klarna has turned from golden egg to millstone

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Commonwealth Bank-backed fintech Klarna’s Australian foray is beginning to look like a disaster for the Swedish buy now pay later startup.

Bank Day Reports that just two years after launch, an EY audit of Klarna Australia’s CY2021 performance reveals a net loss of $56 million, with revenue falling 71% in its first year of operation to just $3.1 million in 2021. In 2020, its debut year, Klarna generated $10.8 million in sales commission revenue.

The decline came despite the company spending nine times that revenue, $27 million, on marketing and advertising in CY21.

Combined with a net loss of $14 million in its first year, Klarna had a net asset shortfall of more than A$70 million as of December 31, 2021.

The audit was completed in August and recently submitted to Australian corporate regulators.

CBA helped launch Klarna in Australia in February 2020 and invested US$300 million in the company for an interest of 5.5%.

CBA and Klarna jointly fund and have 50:50 ownership rights to Klarna’s Australian and New Zealand operations. CBA also reserves the right to cooperate with Klarna in Indonesia.

Klarna is available through the CommBank app. With nearly six million people using the app, Klarna’s average revenue in 2021 will be just over 50 cents per SCBA customer.

The RBA released figures in October 2021 showing that total BNPL transactions in Australia in the 12 months to June 2021 were worth approximately A$11.5 billion.

Last year, Klarna appeared to be gangbusters worldwide, becoming the second most valuable fintech in the world after raising $1 billion in March 2021 for a $31 billion valuation. CBA’s investment in Klarna, which was valued at A$2.7 billion last year.

But as investor sentiment shifted this year, Klarna was one of the startups hardest hit, valuing 85% in just 12 months from $45.6 billion in June 2021 to $6.7 billion after an increase of $800 million. million dollars in July.

Depreciation

Buried in CBA’s 2022 annual report was a $2.3 billion write-down on the value of its investment in Klarna to just A$408 million as of June 30 of this year. That is now less than the US$300 million (A$470 million) the bank has invested in the BNPL.

More broadly, the BNPL industry had a lousy year in 2022. While ASX-listed Zip Co (ASX:ZIP) saw FY22 revenue grow at least 57% to A$620 million, bad debts and a write-down. of $821.1 million on goodwill and intangible assets saw its losses rise 48.7% last fiscal year to a staggering $1.1 billion.

In its second year of existence, Klarna saw its loan loss expense increase from $169,271 in 2020 to $8.5 million in CY2021. That’s more than half of the $15.1 million in receivables on Klarna Australia’s balance sheet.

Banking Day reports that the audit of E&Y partner Michael Byrne concluded that Klarna Australia’s operating losses and net asset shortfall have created material uncertainty “which may cast significant doubt on the group’s ability to continue as a going concern”, but notes notes that the company expects further improvement in operating results in the coming years and the Australian subsidiary has the backing of its Swedish parent company for at least another year.

“A letter of endorsement has been received from the parent company of the company to support the company for at least 12 months from the date of signature of this report,” says the audit, dated August 19, 2022.

CBA has been contacted for comment.

You can read the full Banking Day report here.

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