Klarna CEO says layoffs timing was ‘lucky,’ eyes 2023 profitability

HELSINKI, Finland — Klarna will be profitable again next year after drastically cutting its workforce, CEO Sebastian Siemiatkowski told CNBC.

Klarna lost more than $580 million in the first six months of 2022 as a massive buyout, postpay, cash burn to accelerate expansion in key growth markets like the US and UK.

Under pressure from investors to scale back operations, the company cut its headcount by about 10% in May. Klarna hired hundreds of new employees throughout 2020 and 2021 to capitalize on growth driven by the impact of Covid-19.

“We’ll be profitable again” next summer, Siemiatkowski told CNBC in an interview on the sidelines of last week’s Slush tech conference. “We should be back to profitability on a month-by-month basis, not necessarily on a yearly basis.”

Stockholm-based startup saw 85% removed from its market value in a so-called “bearish round” earlier this year, which saw the company’s valuation drop from $46 billion to $6.7 billion, as investor sentiment around the technology changed due to concerns about a higher interest rate environment.

Buy now, pay later companies, which allow shoppers to defer payment at a later date or pay in installments, have been particularly affected by deteriorating investor sentiment.

Siemiatkowski said the company’s low valuation reflects a broader “correction” in fintech. In public markets, PayPal has seen its stock plunge more than 70% since hitting an all-time high in July 2021.

Siemiatkowski said the timing of job cuts in May was a blessing for Klarna and its employees. Many workers will not be able to find new jobs today, he added, because jobs like meta and Amazon has laid off thousands of people, and technology remains a competitive field.

“We were all lucky to make that decision in May, to some extent, because when we tracked the people who left Klarna behind, basically most people,” said Siemiatkowski. Everyone has a job.”

“If we had done it today, it probably wouldn’t have happened.”

His remarks may raise the eyebrows of former employees, some of them said layoffs are sudden, unexpected, and haphazardly announced. Klarna notified employees of the redundancy in a pre-recorded video message. Siemiatkowski also shared a list of the names of employees who were fired publicly on social media, raising privacy concerns.

While Siemiatkowski admitted to making some “mistakes” around moves to control costs, he stressed that he believed it was the right decision.

“I really think to some extent, Klarna was ahead of the pack,” he said. “If you look at it now, there are a lot of people who have made the same decision.”

“I think it’s a good sign that we’ve come to terms with reality, that we’ve realized what’s going on and we’ve made those decisions,” he added.

Siemiatkowski said there is some “crazy” due to competition among tech companies to attract the best talent. The job market is largely worker-driven, especially in the tech sector, as employers struggle to fill vacancies.

However, that trend is now under threat as the looming threat of a recession has forced employers to tighten their belts.

Earlier this month, Meta, Twitter and Amazon all announced they would lay off thousands of workers. Meta laid off 11,000 of its employees, while Amazon parted 10,000 workers. Under the reign of new owner Elon Musk, Twitter has laid off about half of its workforce.

The field of technology has under extensive pressure in the context of rising interest rates, high inflation and the prospect of a global recession.

But the trend of mass layoffs has been criticized by others in the industry. Julian Teicke, the CEO of digital insurance startup Wefox, has criticized the wave of layoffs, telling CNBC in an interview that he is “disgusted” by the disregard by some companies for their employees.

“I believe CEOs must do everything in their power to protect their employees,” he said in a separate interview at Slush. “I’ve never seen that in the tech industry. And I’m disgusted by it.”