Finance

Dry cannabis flowers inside the packaging room at the Aphria Inc. Diamond facility in Leamington, Ontario, Jan. 13, 2021.
Anne Sakkab | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Salesforce — The cloud software company saw its stock jump 3% after it announced quarterly results and guidance that surpassed Wall Street’s expectations. Salesforce delivered growth in all five of its product categories, and CEO Marc Benioff sees expansion ahead through artificial intelligence.

CrowdStrike — The cybersecurity company jumped 9.3% after it not only beat analysts’ second-quarter expectations on the top and bottom lines late Wednesday, but also issued positive earnings and revenue guidance for the third quarter and full year.
Dollar General — The discount retail chain plunged 12.2% Thursday after reporting second-quarter earnings per share of $2.13, which was lower than the StreetAccount consensus estimate of $2.47. Guidance for the second quarter and full year also disappointed.
Cannabis stocks — Cannabis stocks popped a day after the U.S. Department of Health and Human Services recommended easing restrictions on marijuana and classifying it as a lower-risk drug. Canopy Growth, Tilray Brands and Cronos Group gained 25.8%, 11.3% and 9.6%, respectively.
Ciena — The network equipment stock surged nearly 16% after topping Wall Street’s fiscal third-quarter earnings expectations on the top and bottom lines. Revenue rose 23% from a year ago and the company said it expects fiscal 2024 to be a growth year. Ciena also expects AI adoption to contribute to growth over the long run.
Palantir Technologies — The data analytics stock dropped 8.3% following a downgrade from Morgan Stanley, which said difficulties monetizing artificial intelligence could drive the share price down more than 40%. The firm gave Palantir an underweight rating.

Arista Networks — The networking equipment stock rose 4.4% after Citi upgraded Arista Networks to a buy rating, citing its long-term AI exposure.
Okta — Okta shares surged 13.5% after the access management company topped analysts’ second-quarter earnings expectation and issued a strong full-year outlook. The company reported adjusted earnings of 31 cents per share, excluding items, on revenue totaling $556 million. That came in ahead of the earnings per share of 22 cents and $535 million in revenue expected by analysts polled by Refinitiv.
Five Below — The discount retail stock slumped 6% on disappointing third-quarter guidance. For the current period, Five Below said it expects revenue to range between $715 million and $730 million, versus the $738 million expected by analysts polled by StreetAccount. Earnings per share estimates also came in below expectations.
Shopify — Shares popped 10.8% after Shopify announced late Wednesday that its merchants on its e-commerce platform can use Amazon’s “Buy with Prime” option. The new Amazon app on Shopify’s ecosystem gives merchants access to benefits such as fast and free delivery outside of Prime.
Signet Jewelers — The jewelry stock jumped 5% after Signet reported a stronger-than-expected second quarter. The company reported $1.55 in adjusted earnings per share on $1.61 billion of revenue. Analysts surveyed by StreetAccount were expecting $1.45 in earnings per share on $1.58 billion of revenue. The company also said it expected a multiyear rebound in engagements to start later this year.
UBS — U.S.-listed shares rose 5.6% after the Switzerland-based bank topped profit expectations and announced a slew of job cuts as it integrates Credit Suisse following the recent takeover. Shares hit a multiyear high during Thursday’s session.
Chewy — Chewy shares tumbled more than 12%. The pet food retailer topped expectations and posted surprise earnings of 4 cents per share, but said active users declined year over year. The company also indicated that customers are growing more cautious.
Victoria’s Secret — The intimate apparel stock popped nearly 7% even after missing second-quarter earnings expectations on both the top and bottom lines. Victoria’s Secret also said it expects a wider-than-expected loss for the current quarter.
UGI — UGI shares surged nearly 9% in midday trading. The natural gas and electric utility said Thursday that its board will be exploring strategic alternatives, including a review of UGI’s cost structure and capital allocation priorities.
SkyWest — The regional airline jumped 8.9% following an upgrade to outperform from market perform by Raymond James. The firm said the company has an improved outlook for pilot hiring. 
— CNBC’s Tanaya Macheel, Sarah Min, Yun Li, Alex Harring, Michelle Fox, Pia Singh and Jesse Pound contributed reporting. More

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“It’s very difficult to buy a sports team and lose money,” Carlyle Co-Founder David Rubenstein recently said in an interview for a CNBC podcast. 

Historically, that purported upside has only been enjoyed by the wealthiest of the wealthy. But most major U.S. sport leagues have – just within the last few years – modified ownership rules to allow for private-equity firms to have minority stakes. Major League Baseball was the first to open its coffers to private-investment funds in 2019; a slew of other leagues followed, including the National Basketball Association, Major League Soccer and the National Hockey League. 
Since the start of 2019, more than $120 billion in private equity and venture capital funds have been funneled into the sports industry, according to PitchBook. A big participant in that is Sixth Street Partners, a $74 billion behemoth, known historically for its direct lending and growth prowess, and has been making big inroads in the sports world in recent years, with several billion dollars’ worth of investments. 
The firm recently co-founded Bay FC, part of the National Women’s Soccer League, alongside several retired players, as well as Sheryl Sandberg. Sixth Street also made investments in FC Barcelona’s LaLiga TV broadcasting rights and a majority investment in Legends, a sports and entertainment experiences company. In June 2021, Sixth Street led a strategic investment with Michael Dell in the San Antonio Spurs basketball team. Last year, the firm also invested in legendary Spanish soccer club Real Madrid.
Alan Waxman, the CEO and co-founder of the firm, spoke exclusively for the Delivering Alpha Newsletter – in his first-ever TV interview – about the firm’s vision in what’s become an increasingly crowded sector. He said technology streaming, and social media are changing the team-fan dynamic. 
“Instead of just interacting with your fans in that local market, it’s opened the floodgates on being able to interact with your customers around the world,” he said. 

Waxman said that 10 years from now, fans will be able to put on a headset from their couch and be virtually transported to a game across the world. 

Great returns

Historically, investing in the sports space has paid off. Between 2002 and 2021, the average price return for stakes in NFL, MLB and NBA surpassed the S&P 500, with the NHL slightly trailing, according to PitchBook. But the research firm notes that “returns will likely be lower than the prevailing 20-year period. 
And even though minority stakes are typically sold at a discount – due to lack of control – that gap may be narrowing as more and more institutional firms raise dedicated funds for sports. That competition is likely to drive up prices. 
So how does that change the dynamic about whether or not someone can lose money investing in sports? 
Waxman says, in any investment, one has to protect themselves from even the most unlikely scenario. For example, no one saw COVID coming. 
“So would I go so far as to say that you can’t lose money in sports? For a normal investor, I wouldn’t say that,” Waxman said. “What I can say is the way Sixth Street thinks about things, we’re typically able to create opportunities and customized solutions that work for whatever that particular sports team is looking for, but also in a way that protects our investors’ capital.” More

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Traders on the floor of the NYSE, August 29, 2023.
Source: NYSE

The drought in the IPO market could be near an end, according to a big investor overseeing more than $70 billion.
Alan Waxman, the CEO and co-founder of Sixth Street, believes we’re in about the seventh inning of the downturn in the IPO market as he sees a “real pickup” in the pipeline. His firm has exploded in growth, invested in everything from direct lending to growth companies to real estate to insurance to sports.

“I think people are starting to look for capital and pick on their heads up and obviously having the IPO market open a little bit of a small crack that obviously helps sort of gets commerce moving again,” Waxman said in his first-ever TV interview with CNBC’s Leslie Picker.
Sixth Street has invested in Spotify, Airbnb and Stripe through its growth strategy. Waxman believes that the market will come back to life in the fourth quarter and into the first quarter, adding that volumes will be “materially higher” in 2024 than they were in 2023.
The IPO market experienced a big lull over the past year as an aggressive Federal Reserve and recession fears diminished appetite. If interest rates stabilize and the stock market maintains its 2023 gains, investors might be open to new issuance again. Many believe the highly anticipated IPO of Softbank-backed Arm next month could be a test for sentiment.
Candidates for debuting in the fall could include Instacart, shoe maker Birkenstock, marketing automation firm Klaviyo, carsharing firm Turo and Waystar, which provides software for healthcare billing. More

The group posted a $28.88 billion second-quarter net profit Thursday.
UBS also announced that it will fully integrate Credit Suisse’s Swiss banking unit, a key profit center, in 2024.
This will result in 1,000 redundancies on top of a further 2,000 reduction in head count across the group as part of a mass restructure of the rescued lender.
“Clearly the group remains a construction site in the near term, however we believe this set of results and announcements should give confidence in the mid-term bull case, Buy,” Deutsche Bank said.

Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March.
Fabrice Coffrini | AFP | Getty Images

UBS shares rallied to 15-year highs on the back of what analysts branded a “historic” earnings report, though Deutsche Bank said the Swiss banking giant may remain a “construction site” for some time.
The group posted second-quarter net profit of $28.88 billion on Thursday as a result of $28.93 billion in negative goodwill from its acquisition of stricken rival Credit Suisse, which was brokered by Swiss authorities in March and completed on June 12.

UBS also announced that it will fully integrate Credit Suisse’s Swiss banking unit, a key profit center, in 2024. This will result in 1,000 redundancies on top of a further 2,000 reduction in head count across the group as part of a mass restructure of the rescued lender.
UBS shares were up 5.6% by midafternoon in Zurich on Thursday, touching levels not seen since late 2008.
Notably, UBS highlighted that the massive net asset and deposit outflows seen by Credit Suisse over the last year have finally begun to reverse, and turned positive in June. Meanwhile, UBS’ CET1 ratio, a measure of bank solvency, nudged up to 14.4% from 14.2% in the same period last year, despite the disruption of one of the largest mergers in banking history.

“The underlying UBS business is seemingly not impacted by the deal. Non-Core is significant but made solid progress and the CET1 ratio was strong/ahead of expectations in 2Q23,” Deutsche Bank analysts Benjamin Goy and Sharath Kumar said in a research note Thursday.
“Clearly the group remains a construction site in the near term, however we believe this set of results and announcements should give confidence in the mid-term bull case, Buy.”

This bullishness was echoed by Bruno Verstraete, partner at Zurich-based Lakefield Partners, who told CNBC that Thursday’s result was a “once in a blue moon, historic number.”
“Clearly the good news is indeed that stabilization came and that the market seems to de-risk what was out there and what was potentially something which still had some hidden dead bodies in the cupboard,” he said, referring to the Credit Suisse’s troubled history of legacy compliance and oversight failures.
“That seems not to be the case now, that seems to be under control, and I think investors are really reacting positively to that.”

Earlier this month, UBS announced that it had ended a 9 billion Swiss franc ($10.24 billion) loss protection agreement and a 100 billion franc public liquidity backstop that were put in place by the Swiss government when it agreed to take over Credit Suisse in March.
Verstraete suggested that severing any financial dependence on the Swiss government and central bank had freed up UBS to take the decision on absorbing Credit Suisse’s domestic banking unit without being subject to any political pressure. The prospect of further mass layoffs may be unpopular among some portions of the political and public sphere in Switzerland.
“It’s difficult to combine a blowout result like that and then to announce layoffs at the same time. I think there will be different ways of layoffs in order to get to that integration and into the cost-cutting opportunity that is there. That’s clearly positive for the investors,” Verstraete said.
However, he argued that it is in the interests of the Swiss public to have a “solid bank.”
“One third of Switzerland is banking with the group, combined. They want to have a stable group, they don’t want to have a mastodon created that is too big to save. I think this de-risking, this going from a risk culture to another one is something that is clearly going to be beneficial for the general public in the end,” Verstraete added.

UBS on Thursday announced plans to further wind down noncore units of Credit Suisse’s ailing investment bank, wealth management and asset management divisions, which it said are “not aligned with our strategy and policies.”
Gildas Surry, senior analyst at Paris-based Axiom Alternative Investments, told CNBC on Thursday that the market will be closely watching UBS’ efforts to wind down these noncore divisions, and seeking further guidance on the future of the bank’s CET1 ratio.
“What is very positive is the actual inflows, so the deposit reversal is taking place that’s also a very good sign for the franchise,” Surry said.
“The integration of Swiss operations from Credit Suisse is very much in line so nothing new there, but what’s going to be very interesting is indeed the timeline of share buybacks, and for that we need to have the repayment of the funding line from the Swiss National Bank and also the demonstration that UBS has access to the AT1 markets following the write-downs of the Credit Suisse AT1s in March.”
The Swiss government, central bank and UBS came under fire in March after the emergency rescue package included the controversial write-down of 16 billion francs of Credit Suisse AT1 bonds. More

A pause on monthly payments and interest for student loans has been in place since early 2020.
Interest accrual resumes for borrowers on Sept. 1.
That puts a spotlight on differences between two types of federal debt: subsidized and unsubsidized student loans.
Unlike with subsidized loans, interest starts accruing on unsubsidized loans upon disbursement, and during grace periods and deferments.

Srdjanpav | E+ | Getty Images

How interest accrues on loans

Direct Subsidized Loans are available to undergraduate students who demonstrate a financial need.
They don’t accrue interest while a borrower is in school (at least half-time) or during a six-month grace period after leaving school. The loans also don’t accrue interest during deferment, a period when payments are postponed due to unemployment or economic hardship.
The U.S. Department of Education pays the interest on subsidized loans in these instances.

However, that protection isn’t available for Direct Unsubsidized Loans, which are available to a broader group of borrowers (including graduate students) and are not based on financial need.
Unlike subsidized loans, interest on unsubsidized loans starts accruing immediately (i.e., upon disbursement) and during times like deferment or grace periods — making this debt more expensive.

Additionally, in some cases — after a deferment, for example — unpaid interest on unsubsidized loans may “capitalize.” When this happens, unpaid interest is added to the loan’s principal balance; future interest is then calculated off that higher principal, thereby increasing future interest payments.
Borrowers can carry both subsidized and unsubsidized loans, which have different borrowing limits.
About 30.3 million borrowers had subsidized Stafford Loans as of March 31, with an average balance of $9,800, according to Education Department data. About 30.7 million people have an unsubsidized loan, with an average balance of about $19,000, according to the Education Department.
(The term Stafford Loan is an informal way of referring to Direct Subsidized Loans and Direct Unsubsidized Loans made via the Direct Loan Program. It also refers to subsidized or unsubsidized Federal Stafford Loans made via the Federal Family Education Loan, or FFEL, program.)

How the payment pause, interest waiver affected loans

A pause on monthly student loan payments and interest has been in place since the onset of the Covid-19 pandemic in 2020. During that time, interest wasn’t accruing on any loans — meaning unsubsidized loans essentially became subsidized debt for some borrowers.
However, interest will start accumulating on borrowers’ debt again on Sept. 1, and monthly payments will resume in October.
The interest waiver cost the federal government about $5 billion a month.

Some financially strapped borrowers may now wonder if it’s a good idea to pursue deferment or forbearance as payments resume, Mark Kantrowitz, a higher education expert, previously told CNBC.
But “you’re effectively digging yourself into a deeper hole” by pursuing these avenues, Kantrowitz said, since interest will typically be accruing during deferral or forbearance. (There are exceptions: for example, if a subsidized loan is in deferment, or if either type of loan is in deferment due to active medical treatment for cancer.)
Pursuing an income-driven repayment plan, which caps monthly payments, is generally a better option for borrowers, unless the financial difficulty is short term in nature, Kantrowitz said.
“In general, you don’t want to use deferment or forbearance if you’re capable of repaying the loan,” he said. More

China-U.S. trade fell by 14.5% in the first half of the year from a year ago, said Xie Feng, China’s ambassador to the U.S., who blamed U.S. tariffs and export controls for the drop.
“We need to find a path for expanding mutually beneficial economic cooperation and trade between China and the United States,” Xie said at Forbes’ U.S.-China Business Forum.
Xie called Biden’s executive order aimed at restricting U.S. investments into Chinese semiconductor and AI “a violation of the principle of free trade.”

Relations between Washington and Beijing are at their lowest in decades amid disputes over trade, technology, human rights and China’s increasingly aggressive approach toward its territorial claims involving self-governing Taiwan and the South China Sea.
Jason Lee | Reuters

BEIJING — China’s ambassador to the U.S., Xie Feng, has blamed U.S. tariffs and export controls for a drop in trade between the two countries.
That’s according to a speech he gave via video on Tuesday at Forbes’ U.S.-China Business Forum in New York, published online by the Chinese Embassy in the U.S.

China-U.S. trade fell by 14.5% in the first half of the year from a year ago, Xie pointed out.
“This is a direct consequence of U.S. moves to levy Section 301 tariffs on Chinese imports, abuse unilateral sanctions and further tighten up export controls,” he said.
“Livelihoods of many families have been affected, and businesses from both countries have born the brunt.”

China’s trade partners

The U.S. is China’s largest trading partner on a single country basis.
Year to date, U.S.-China trade fell further in July with a 15.4% decline from the same period in 2022, China customs data showed.

To shut out China is to close the door on opportunities, cooperation, stability and development.

China’s ambassador to the U.S.

“The biggest risk is any decoupling between China and the United States, and the largest source of insecurity comes from any confrontation between the two,” he said.
“To shut out China is to close the door on opportunities, cooperation, stability and development.”
Exports remain a major contributor to China’s economy, although their share has fallen in recent years.
The U.S. government on Wednesday revised down second-quarter domestic product to a 2.1% annualized pace, contrary to expectations there would be no revision, Reuters said. The report said lower business spending on equipment contributed to the revision.

Xie on Tuesday called for finding “a path for expanding mutually beneficial economic cooperation and trade between China and the United States.”
“Going forward, we need to continue taking concrete steps, no matter how small they may look,” he said, giving examples — such as making it easier for people to travel between the two countries, and renewing an agreement to cooperate on science and technology.
On a regional basis, the European Union and Association of Southeast Asian Nations are China’s largest trading partners. Those trade flows have also dropped this year — albeit at a more moderate pace — amid a decline in global demand.

Xie on Tuesday pointed out China’s global dominance in trade and in industries such as electric vehicles. He noted that France, the U.K. and Japan had significantly increased their foreign investment in China in the first half of the year.
“More efforts will be made to protect foreign investment and ensure national treatment for foreign-invested enterprises,” he said.

U.S. Commerce secretary visits China

In his remarks, Xie noted U.S. Commerce Secretary Gina Raimondo’s trip to China this week. Following her meetings with Chinese government officials, the U.S. and China agreed to establish regular communication channels on commerce, export controls and protecting trade secrets.
Raimondo told reporters she “said no” to China’s requests to reduce export controls and “retract” the executive order on outbound investment screening.
“We don’t negotiate on matters of national security,” she said.

Instead of containing China, it will only curtail the right of American businesses to develop in China.

China’s ambassador to the U.S.

The U.S. government has cited national security concerns for its moves to restrict Chinese companies’ purchases of advanced semiconductors from U.S. businesses.
In 2018, the Trump administration imposed tariffs on Chinese goods, to which Beijing responded with tariffs of its own.
Xie claimed that average U.S. tariffs on Chinese products were 19%, while the Chinese tariffs on U.S. goods averaged 7.3%.
“Is this fair? Does this truly serve U.S. interests?”

The ambassador assumed his role in May after a period of about six months in which China had no ambassador to the U.S. 
In August, U.S. President Joe Biden signed an executive order aimed at restricting U.S. investments into Chinese semiconductor, quantum computing and artificial intelligence companies over national security concerns. Treasury Secretary Janet Yellen is mostly responsible for determining the details, which currently remain open to public comment. 
Xie called the executive order “a violation of the principle of free trade.”

Read more about China from CNBC Pro

“It is simply confusing that the United States, which repeatedly urged China to expand access for foreign investment in the past, is now imposing restrictions itself,” he said. “Instead of containing China, it will only curtail the right of American businesses to develop in China.”
As part of Raimondo’s trip to China, the U.S. Commerce secretary said she spoke with more than 100 businesses and increasingly heard from them that “China is uninvestible because it’s become too risky.”
“My message was there’s a desire to do business, but we need predictability, due process and a level playing field,” Raimondo added in an exclusive interview with CNBC’s Eunice Yoon on Wednesday. More

The exterior of a Dollar General convenience store is seen in Austin, Texas, March 16, 2023.
Brandon Bell | Getty Images

Check out the companies making the biggest moves before the bell:
Dollar General — The discount retailer tumbled 15.3% after reporting second-quarter earnings per share of $2.13, missing the StreetAccount consensus estimate of $2.47. Revenue also missed, coming in at $9.80 billion versus the $9.93 billion expected. Guidance for the second-quarter and full year also disappointed.

Campbell Soup — Shares added about 1% after the company reported revenue of $2.07 billion, beating the $2.06 billion expected from analysts polled by Refinitiv. Earnings were in line with expectations.
UBS — U.S.-listed shares of the Swiss bank popped nearly 5% after UBS reported a second-quarter profit of $28.88 billion, versus the projected net profit of $12.8 billion, according to a Reuters poll.
Shopify — The e-commerce platform rallied about 7% after its announcement late Wednesday that its merchants can use Amazon’s “Buy with Prime” option.
Palantir — Shares shed 3.6% in premarket trading after being downgraded by Morgan Stanley to underweight from equal weight. The Wall Street firm said investors are now looking for tangible revenue from the company’s generative artificial intelligence initiatives and may be disappointed. The stock has soared 154% this year.
Salesforce — The software company jumped 6.2% following its earnings beat after the bell Wednesday. Adjusted earnings per share came in at $2.12 for the second quarter, versus the consensus estimate of $1.90, per Refinitiv. Revenue was $8.60 billion, topping the $8.53 expected. Goldman Sachs subsequently hiked its price target by $15 to $340 a share, suggestions 58% upside.

Canopy Growth, Cronos Group, Tilray Brands — The cannabis stocks moved higher after the U.S. Department of Health and Human Services recommended reclassifying marijuana as a lower-risk drug. The reclassification could potentially expand the market for marijuana. Cronos climbed 2.6%, while Tilray gained 2.3%, and Canopy Growth added about 1%.
Victoria’s Secret — Shares tumbled 6.5% after the lingerie retailer reported an earnings and revenue miss following Wednesday’s close. Victoria’s Secret also said it expects a third-quarter loss of 70 cents to $1 per share, versus the 14 cents loss expected by analysts.
Arista Networks — The network equipment stock added 276% after Citi upgraded shares to buy from neutral. The firm said Arista can be considered an early artificial intelligence play.
Okta — The stock popped 10.6% in premarket trading following its earnings and revenue beat after the bell Wednesday. Second-quarter adjusted earnings per share came in at 31 cents, versus the 22 cents expected from analysts polled by Refinitiv. Revenue was $556 million, compared to the $535 million expected. Okta also issued a strong outlook for the full year.
SkyWest — The regional airline added 3.7% after being upgraded by Raymond James to outperform from market perform. The Wall Street firm said pilot attrition trends have been improving and the company has been able to get partners to absorb higher costs. SkyWest has already rallied 150% year to date.
Five Below — Shares of the discount retailer fell nearly 5% after Five Below’s guidance for the third quarter came in below expectations. The company said it expected earnings per share between 17 and 25 cents on revenue of $715 million to $730 million. Analysts surveyed by Refinitiv were expected 40 cents per share on $738 million of revenue. The company said that the earnings guidance was due in part to increased reserves for “shrink,” a retail term that includes theft. Five Below’s second-quarter results were roughly in line with estimates.
Chewy — The pet food retailer fell 4.8% despite an earnings and revenue beat postmarket Wednesday. However, its revenue guidance for the third quarter of $2.74 billion to $2.76 billion fell short of the $2.79 billion expected from analysts, per StreetAccount.
— CNBC’s Jesse Pound and Alex Harring contributed reporting. More

Klarna reported overall net operating income of 9.2 billion Swedish krona ($843.8 million), up 21% year-over-year from 7.5 billion krona in the same period a year ago.
Klarna didn’t manage to report a profit though. The firm posted a net loss for the period of 2.1 billion Swedish krona, down 67% from 6.4 billion krona between January to June 2022.
Klarna recorded a monthly profit in the first half, which the company attributed to cost optimization via cutting expenses and boosting efficiency through artificial intelligence.

“Buy-now, pay-later” firm Klarna aims to return to profit by summer 2023.
Jakub Porzycki | NurPhoto | Getty Images

Swedish buy now, pay later firm Klarna reduced its losses by roughly 67% in the first half of 2023, as the company dramatically cut costs in a bid toward profitability.
The company reported overall net operating income of 9.2 billion Swedish krona ($843.5 million), up 21% year-over-year. Failing to record a half-year profit, the firm posted a net loss of 2.1 billion Swedish krona for the period, down 67% from 6.4 billion krona between January to June 2022.

Klarna did, however, say that it recorded one month of profitability in the first half of the year, ahead of its internal target to post profit on a monthly basis in the second half.
Klarna CEO and founder Sebastian Siemiatkowski hailed the firm’s profitability milestone, saying that its results “clearly rebut the misconceptions around Klarna’s business model, evidencing that it is incredibly agile and sustainable,” and supporting a “healthy consumer base.”
“Some claimed Klarna would face difficulties in the tough macro-economic climate with high interest rates, but having led the company through the 2008 financial crisis I knew we had a strong and resilient business model to see us through. Despite the volatile environment, we have done exactly what we set out to do,” Siemiatkowski said.
Credit losses, a measure of how much the company sets aside for customer defaults, sank by 39% to 1.8 billion krona from 2.9 billion.
Buy now, pay later, or BNPL, firms allow shoppers to defer payments to a later date or purchase things over installments on interest-free credit.

These firms are able to offer zero-interest loans by charging merchants, rather than customers, a fee on each transaction — but as interest rates have risen, the BNPL funding model has been challenged.
Siemiatkowski previously told CNBC the company was planning to achieve profitability on a monthly basis in the second half of 2023, suggesting that an aggressive cost-cutting strategy in 2022 — which included hundreds of redundancies — had paid off.
Klarna cut 10% of its workforce in May last year.
“To some degree, all of us were lucky that we took that decision in May [2022] because, as we’ve been tracking the people who left Klarna behind, basically almost everyone got a job,” Siemiatkowski said at an interview in Helsinki, Finland, at the Slush technology conference last November.
“If we would have done that today, that probably unfortunately would not have been the case.”
Klarna said that cost optimization was a key factor behind its ability to churn out a monthly profit in the first half of the year.
The company said that operating expenses before credit losses improved by 26% year-on-year, thanks in part to its push into artificial intelligence.
Klarna said a recently-launched customer services feature “made solving merchant disputes for customers more efficient, saving over 60,000 hours annually.”
Like other fintech companies, Klarna has made a big push into AI lately, as it looks to capitalize on the growing boom in the industry’s growth, following the birth of OpenAI’s ChatGPT.
In April, the company revamped its app with a host of new personalized shopping features. It is trying to make the software similar to TikTok, which has a discovery feed for users to find content suited to their preferences.
David Sandstrom, Klarna’s chief marketing officer, told CNBC at the time that the aim was to “offer people products and brands before they knew they wanted them.”
Klarna last year saw 85% erased from its market value in a so-called “down round,” taking the company’s valuation down from $46 billion to $6.7 billion.
Some of the company’s peers, like PayPal, Affirm, and Block, also saw their shares plummet sharply amid a wider sell-off in technology valuations.
Klarna at the time blamed deteriorating macroeconomic conditions, including higher inflation, rising interest rates, and a shift in consumer sentiment. More