Klarna will become profitable again by next year after making deep cuts to its workforce, CEO Sebastian Siemiatkowski told CNBC. The company has been struggling financially in recent years, but Siemiatkowski is confident that it can turn things around. He said that Klarna is already seeing positive results from its cost-cutting measures.
Klarna lost a lot of money in the first half of 2022 as it invested heavily in expansion in key markets like the United States and United Kingdom.
Under pressure from investors to reduce its costs, the company reduced its workforce by about 10% in May. Klarna had hired hundreds of new employees over the course of 2020 and 2021 to capitalize on the growth opportunities presented by the Covid-19 pandemic.
Siemiatkowski told CNBC in an interview on the sidelines of the Slush technology conference last week that the company will return to profitability by the summer of next year. He said that the company should be back to profitability on a month-by-month basis, not necessarily on an annual basis.
The Stockholm-based startup saw its market value plummet by 85% in a so-called "down round" earlier this year. This took the company's valuation down from $46 billion to just $6.7 billion, as investor sentiment around tech shifted over fears of a higher interest rate environment.
Buy now, pay later firms have been impacted by souring investor sentiment. These firms allow shoppers to defer payments to a later date or pay over installments, which has caused some investors to hesitate.
Siemiatkowski said the firm's depressed valuation reflected a broader "correction" in fintech. He noted that in the public markets, PayPal has seen its shares slump more than 70% since reaching an all-time high in July 2021.
Siemiatkowski said that the timing of the job cuts in May was fortunate for Klarna and its employees. Many workers would have been unable to find new jobs today, he added, as the likes of Meta and Amazon have laid off thousands and tech remains a competitive field.
"I think we were all lucky that we took that decision in May," Siemiatkowski said. "As we've been tracking the people who left Klarna behind, almost everyone has been able to find a new job."
"If we had done that today, it probably would not have been the case."
Some former employees have raised eyebrows at Klarna's recent layoffs, which were reportedly abrupt, unexpected, and messily communicated. Klarna informed staff of the redundancies in a pre-recorded video message. Siemiatkowski also shared a list of the names of employees who were let go publicly on social media, sparking privacy concerns.
Siemiatkowski admitted that he made some mistakes in his efforts to keep costs under control, but he stressed that he believes it was the right decision.
Klarna was ahead of the curve in many ways, according to its CEO. The company's early decisions have been replicated by many other businesses in recent years.
"I think it's a good sign that we faced reality and recognized what was going on," he said. "I'm glad we took those decisions."
Siemiatkowski said that the competition among tech firms to attract the best talent has caused some "insanity" in the job market. He noted that the job market is largely employee-driven, particularly in the tech sector, as employers struggle to fill vacancies.
The current trend of job security is now under threat as employers are preparing for a potential recession.
Earlier this month, Meta, Twitter and Amazon all announced they would lay off thousands of workers. Meta let go 11,000 of its employees, while Amazon parted with 10,000 workers. Under the new ownership of Elon Musk, Twitter laid off about half of its workforce.
The tech sector has been under pressure recently due to rising interest rates, high inflation, and the prospect of a global economic downturn. This has caused many companies in the sector to reevaluate their strategies and make changes in order to stay afloat. Despite the challenges, the tech sector remains an important part of the global economy and is expected to continue to grow in the coming years.
However, the mass layoff trend has been criticized by others in the industry. Julian Teicke, CEO of digital insurance startup Wefox, decried the wave of layoffs, telling CNBC in an interview that he is disgusted by the disregard of some companies for their employees.
In a separate interview at Slush, the CEO said that he believes that CEOs have a responsibility to do everything they can to protect their employees. He went on to say that he is disgusted by the lack of care for employees he has seen in the tech industry.
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