Klarna Losing Millions on "Burrito Loans" & People Love Trader Joe's

0:00Tuesday on NBC, Jimmy Fallon and Bozma St John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere Tuesday on NBC. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, Trader Joe's has been ranked the most reputable company in America, but there's one name that's sank far down the list.

0:42Then Klarna users are buying now, but they're not paying later. It's Wednesday, May 21st. Let's ride.

0:54Here is some potentially useless information. Starting yesterday, every date written out in the American format for the next 10 days will be the same backwards. It's palindromes all the way down. Tuesday was 5-20-25. Today is 5-21-25. Tomorrow is 5-22-25, et cetera, et cetera, until we hit May 30th when the streak will sadly end. It's not useless, Neil. I'm about to drop this fun fact in every single meeting I have from today until next Thursday when the streak ends. Feels like the universe is telling us to slow down and reflect, or at least double-check the date before signing anything. But I'm already looking ahead to the next palindromic date on the calendar.

1:39I've got March 3rd, 3 ,033 circled. Let's have a party. And now a word from our sponsor, Iterable. Neil, you know those conversations with your mom, but there's a delay on the phone. You say something, they talk over you, you both stop, then awkward silence. It's a mess. Unfortunately, I've had many a conversation like that. And those stop-start convos are what campaign-based marketing feels like. delayed out of sync and totally disconnected from what your customer actually needs right now iterable fixes that it replaces outdating marketing calendars with ai powered moment-based engagement so when your customer takes an action browses buys or bounces iterable response instantly with personalized messaging across every channel it's real-time marketing that actually feels real no delays no lag just seamless relevant communication that moves at the speed of your customer.

2:30The best conversations don't happen on a delay. They happen in the moment. Now, remember to go call your moms and visit endthecampaign.com.

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3:28Before starting EPCLIS, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EPCLIS and visit ePCLIS.lily.com or call 1-800-LILY-RX or 1-800-545-5979. Lateralized debt obligations that helped crash the economy in 2008 are back, but this time it's not subprime mortgages going under. It's burritos. Klarna, the buy now, pay later giant, said this week that its customers are struggling with that pesky second part as consumer credit losses shot up to$136 million, 17 % higher than the first quarter last year. Those losses came on the back of a lousy consumer confidence reading, a sign that BNPL is increasingly becoming a burden that debt-saddled Americans can ill afford to bear.

4:12An uncertain macro environment has also put a damper on Klarna's IPO dreams as a Swedish company pressed pause on its long-awaited public debut, citing the destabilizing impact of tariffs. Through it all, the company has been trying to channel its inner Chamath, Friedberg, Sachs, and Calacanis and going all in on AI. Its CEO presented its earnings call on Monday using an AI-generated avatar of himself, though there have also been some rumblings that its AI aspirations have gone too far. Earlier this month, Klarna CEO Sebastian Chemikowski said that the company began hiring human gig workers since AI by itself wasn't enough to provide quality customer service.

4:53Neil, Klarna has so many different balls in the air right now, from replacing workers with AI to navigating an uncertain economic environment. And it's got to figure it out now or there won't be a later. Yeah, a lot of people were watching these earnings after Klarna signed this eyebrow-raising deal with DoorDash, which means you could essentially put your$10 takeout delivery order on credit, which has led to a lot of jokes about collateralized burrito loans. But if you're looking at the consumer confidence measures that are plummeting second lowest in American history, and you're like, well, people are broke.

5:31You can certainly look at Klarna's earnings as evidence of that. They reported a net loss of$99 million for the three months to March, which is up from$47 million a year earlier. So losses have more than doubled. Those consumer credit losses are also skyrocketing. So if you're looking for a gauge of the health of the American consumer, you can certainly look to Klarna's credit approach to maybe find some answers. Yeah, and Klarna is trying to say that this is not actually alarm bells going off because the rise in unpaid balances is pretty low. In their words, it's still very low. The share of its total lending of these, I wanted to say subprime mortgages that have gone bad, but these loans that have gone bad rose from 0.51 % to 0.54%.

6:16So they're saying in the grand scheme of things, a lot of people still are paying off their burritos. But let's also talk about this big shift that they've gone through when it comes to AI. Klarna was on the forefront of this AI push. They said that one AI system could replace 700 human customer service workers. But they've also said we might have gone too far. They said that maybe cost became too predominant of an evaluation factor and that quality suffered as a result of that. And so now they are trying to invest in the human aspect of customer support again. And Shamikovsky said that we want to have a human in the chain at all times, basically to because they provide superior customer service to an AI bot.

6:59So it has been this interesting pivot from all into AI to introducing some more human touch back to Klarna. Still, this company's workforce has shrunk dramatically as it's pivoted to AI, showing that they're still all in on this technology, which they said they wanted to be OpenAI's favorite guinea pig back in 2023. They used to have 5 ,000 employees. Now they're down to about 33 ,000, which is a 40 % decrease. And the CEO wants to get that number down to about 2 ,500. They've also, at the same time, grown their revenue per employee, which is not a surprise. That used to be$575 ,000 in revenue per employee.

7:39Now they're over 1 million. And actually, I didn't even mention the coolest part of this introduction of consumer support workers back into their chain. They are doing it in an Uber-type setup where some agents who just are fans of the company, who maybe live in rural locations or even abroad, can just step in and pick up a shift on their customer support hotline. Because he's like, a lot of our customers love Klarna. They're very knowledgeable about the product. So rather than hiring or outsourcing to a call center like that, they're bringing in agents ad hoc like you do and hire an Uber driver.

8:14So Shemakovsky cannot stop innovating when it comes to customer service. First, he tried to do it. I don't know if that would lead to better quality if you have people pop in and try to help somebody. No, it's certainly a question, but he's constantly pushing the boundaries here. It doesn't necessarily, we will only know in the future if those boundary pushing was actually the right strategy or not. Moving on, batteries are big business, and I'm not talking AAA or even a 9-volt. contemporary Amperex Technology Company Limited, the world's largest maker of batteries for electric vehicles, went public in Hong Kong yesterday in the biggest listing of the year anywhere around the globe, shooting up 16 % in its first day of trading.

8:54CATL, as it's commonly known, raised$4.6 billion to ramp up its quest for global battery domination. Not that it isn't dominant already. The company supplies battery packs to the leading auto manufacturers, including Tesla, Volkswagen, Ford, Mercedes, Benz, and more, cornering the market with a commanding 38 % share. Its financials are similarly impressive, generating sales of$50 billion last year and$7 billion in profits. You're probably listening to this thinking, wow, CATL is a dog. How do I invest? Well, if you're in America, you can't, which is the plot twist you didn't see coming. CATL and the folks in D.C.

9:34are not on good terms with the Pentagon blacklisting the company over alleged ties to the Chinese military. And as it's been caught up in these geopolitical tensions between the U.S. and China, CATL blocked American investors from piling into its public listing. Toby, if there's one company that showcases the kind of environment we're in right now, CATL is a pretty good choice. Yeah, it's pretty amazing that it's been able to have the success that it's had because the Pentagon blacklist, and it's got congressional scrutiny on it. It's part of a global trade war, but through it all, it did just have the biggest IPO of the year with no American money flowing into it, which was just something that kind of seemed a little bit unfathomable even just a few years ago, because that's where all the deep-pocketed institutional investors are.

10:17That's where the deep-pocketed recreational investors, retail investors are. And yet here, CATL just had its Hong Kong listing. And now two of the biggest IPOs of the year have been outside of the U.S. There was also one in Japan that brought in nearly$3 billion. You have to go down to Venture Global and CoreWeave to find the first two U.S.-based IPOs that even crack the top three. So it has been fascinating to see this kind of globalization of capital that has happened that you don't need the U.S. investor in order to have a successful debut. Right. Just go back 11 years and another Chinese giant company went public.

10:59That was Alibaba. Where did it go public? That was the New York Stock Exchange. And Alibaba felt like it needed to list in the United States because you're right, that's where the capital markets were leading. But we've seen this financial decoupling over the past few months, especially as capital has left the United States. And I think the CATL public listing is probably a really good example of this. But its business is doing just fine. And that's because the EV market in China is going nuts. EV sales surged to 11 million last year, which is a 40 percent increase compared to the previous year.

11:35It wants to expand in Europe. That's what it's raising all this money for is to build a$7 billion battery plant in Hungary to service the European market. And it's going toe-to-toe with BYD on making a super fast charging battery. It says it can now charge a car for over 320 miles on five minutes of charge. I can't even charge my iPhone and get three hours out of it. It can charge a battery in five minutes, get 320 miles. Yes, definitely a company to keep your eye on. Probably the biggest company that you should know about in terms of the global world order right now that you maybe didn't before today.

12:10What do Trader Joe's, Patagonia, Costco, Toyota, and Arizona beverages have in common besides sounding like the perfect ingredients for a little weekend day trip? You're all gaga over these brands. These companies ranked in the top 10 of the Axios Harris Poll 100, which measures the public perception of the most visible U.S. companies across categories like trust, character, culture, products, and vision. The top five were in order TJ's Patagonia, Microsoft, Toyota, and Costco, with Arizona beverage company Apple, Nintendo, Home Depot, and In-N-Out all ranking in the top 20. What's not in the top 20?

12:47Any of Elon Musk's companies, which have suffered a steep dive in the reputation rankings as he's taken more political public positions. Take Tesla, for example. In 2021, the automaker was in eighth place, but last year it fell to 63rd, and this year it's a bottom feeder at 95. SpaceX also dropped 36 places from the previous year to 84. Four. Harris Poll CEO John Gerzema tried to explain the plunge, saying, quote, consumers are looking not just at the product, but who is behind the product, what values they represent. That's increasingly a reputational risk for leaders like Musk. Toby, what's your takeaway from this?

13:24What can we learn about businesses at the top of the rankings and the ones that rank poorly? I do think that inflation expectations and consumer sentiment did drive a lot of the rankings this year. It's part of the reason why Trader Joe's is at the top. One, they have this very clear value system. They're very firm on their corporate values, but also they haven't really raised prices. And I think a big stat that illustrates why it's at the top is 78 % of Americans have noticed increasing costs of groceries over the past year. So it makes sense that Trader Joe's topped the rankings because they have been able to keep prices down.

13:59So this singular shift towards prices and inflation led some of those more price conscious companies to rocket up the rankings. And then also some other names that I think were interesting as they've rise and fallen through the ranks. Deep Seek, the Chinese AI company, debuted at number 46 on the list. That is above OpenAI that comes in at number 55 on this list. State Farm only fell seven places after its role in the California Wildfires, coming in just ahead of DraftKings at 63. And then Home Depot was actually one of the biggest risers, jumping 24 spots to reach number 15. We're going to talk about this later in the show, but they just came out and said, we are holding prices steady.

14:40So again, it speaks to this price conscious consumer. And then outside of Tesla, Google was one of the biggest followers, dropping 23 spots to number 40. So just some interesting reshuffling amongst the middle of the rankings as well. Let's take a break and then talk about some really, really bad soccer teams. This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs.

15:18Like a good neighbor, State Farm is there. Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them. In fact, you can even target buyers by job title, industry, company, seniority, skills, and did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free $250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. There is a very important soccer game going down in Bilbao today between two very, very bad soccer clubs.

16:02Manchester United, a once proud titan of European football, is taking on Tottenham, a less proud and less titanic member of European football in the Europa League final where stakes won't match the quality of the game. Man U and Tottenham are both stuck in their worst seasons of top flight football in their history, mired just above the relegation zone in the Premier League in 16th and 17th place. But they both have a lifeline to claw back some pride and money today. The Europa League is basically the NIT tournament to the Champions League's March Madness. And while winning grants you a nice trophy, the real prize is a ticket back to the big kids table and a chance to earn a lot of cash.

16:43Any club that even makes it to the Champions League earns over$21 million just for showing up. If you make a deep run, that can net you$100 million or more. So despite unfathomably bad seasons from both, Tottenham have won just a single game since February. Both clubs have a chance to backdoor their way into the European elite and earn a small fortune at that. Neil, I'm a Manchester United fan, and it's almost embarrassing to think that somehow we will be playing Champions League football after the sorry arse season we've had. Just for some background for people who may be new to European soccer, imagine that during the baseball season, MLB clubs are playing a concurrent tournament against teams from Canada, Mexico, South America.

17:29This tournament is running during the same time as the MLB season. It's just international in scope or continental. That's what happens in soccer. But there isn't just one tournament going on. There's a couple different ones. And there's the Champions League, which is the one that the Dodgers, the Tigers, the Phillies would be in. And then there is the NIT, the second tier one, which is the Europa League. And that would be like where the Reds, Braves and Red Sox, the mediocre teams are playing. Somehow Manchester United and Tottenham, despite being terrible in their quote-unquote MLB season, made it to the finals of this Europa League.

18:04And there's so much money at stake. And it's not just that winning would be good. It's that losing would be bad because these, especially a team like Manchester United, makes financial plans going forward with the understanding that they would be in the Champions League and the$100 million that comes with it. And you might think that Manchester United, wow, like they are a global brand. They must be just like raking in money, but they're actually in a very dire financial situation. They are$1 billion in debt. They're clocking up three straight seasons of losses. So is Tottenham. I haven't even mentioned that.

18:38But together, those two teams have lost 300 million pounds over the past three years. So it's not just like a nice to have. It's a need to have. Can you give us a metaphor that doesn't involve baseball now, too? What if people don't understand the baseball season? Use the NFL now to explain the baseball season to then explain the Champions League. No, you did very well there. But I also think this just shows how unprecedentedly rich the top flight of English soccer is right now. The Premier League just has insane wealth and depth. The fact that 16th and the 17th place team can meet at the second highest level of European competition is kind of crazy.

19:18Just simply existing in English soccer means that you're going to receive a million of$150 million per season because of its lucrative TV deals. So the entire league as a whole is just richer than most of the other leagues spread across Europe. So I do think that it's no quittance that nine of the top 18 revenue generating clubs in Europe are English. And it just shows the depth and the – I was going to say the quality of this league. But I won't even mention the product on the field. But the depth of this league is just astounding when it comes to how much money these teams are bringing in. All right.

19:50So who's winning this game? I honestly want them both to lose. It truly is embarrassing. If Manchester United win, I guess I am rooting for it deep down. But I feel embarrassed that we would win and make it to the Champions League after the season that we just had. Let's sprint to the finish with some final headlines. Google hosted its big I.O. conference yesterday to show off all its AI and search upgrades, but a piece of hardware is stealing a lot of the headlines. Google unveiled its Android XR smart glasses prototype at their Buzzy keynote. Set on Warby Parker frames, which caused the glasses company to jump 15 % on the announcement, they contain a discrete camera and a display in the right lens.

20:31You can prompt Gemini by pressing on the frame and asking it to identify a painting or pick which guidebook is best for an outdoorsy type for a trip to Japan or even do live translation. Again, still just a prototype, but according to reviews, quickly catching up to Meta's Ray-Ban glasses. In non-glasses news, Google also introduced a$250 a month AI Ultra subscription that gives you access to all its most powerful models. And speaking of live translation, Google Meet can now do AI-powered live voice translation, starting with English and Spanish. So, Neil, no shortage of catting edge announcements.

21:07Meta and Ray-Ban versus Google and Warby Parker. Choose your fighter. This has been a hugely successful product for Meta, these smart glasses. And now Google, I guess, has shed the nightmares of Google Glass back in 2013. And they're looking to see Zuck make all this money with these smart glasses. And they're like, hey, you know, guys, we pioneered this thing. Like, don't remember. We laid the foundation for all of you. It's time for us to get back in the ring. I just don't know whether the Warby Parker look will supersede the Ray-Ban look. Yeah, the glasses wars are certainly kicking off in earnest.

21:44But also, I was just cruising Reddit and X as this keynote was going on, and one user kind of summed up the general sentiment pretty well and said, serious question, are they going to talk about something else other than AI? So when we talked about that Harris Axios poll and Google falling in the rankings, Maybe their over-reliance on pushing AI narratives have contributed to that. So it's interesting to see those two things kind of happen in parallel and see kind of this negative pushback from an audience on social media. Home Depot zagged while other retailers have zicked and announced yesterday that it does not plan to implement price increases for customers, even as tariffs raise costs.

22:21It's trying to keep prices low by doing some supply chain magic, diversifying its sourcing to make use of its large domestic supply base. However, the company warned that some specific products may become unavailable or see price adjustments if tariffs make them impractical to stock. The announcement comes on the heels of Walmart announcing it will raise prices on certain items due to the impact of tariffs, saying that the magnitude of those costs increase is too great for the company to absorb fully. So, Neil, two roads diverged in the retailer Woods, and Home Depot is taking the one that eats the tariffs.

22:56Well, it might have to do with wood because Home Depot sells a lot of lumber. But so far, there haven't been any tariffs on lumber, even though that's threatened. We get 30 percent of the softwood lumber consumed in the United States is imported. Canada accounts for 80 percent of that. If lumber gets tariff, then I don't know whether Home Depot can keep its prices steady as it has. But it just might be a quirk of what these two retailers sell. Walmart is raising prices mostly on like strollers and electronics and toys, which Home Depot doesn't really sell. So Home Depot is going on the offensive and saying, wow, we have a really diversified supplier base.

23:36Over 50 percent of our stuff already comes from the United States. We are just going to hit the gas pedal and try to take market share away from our competitors that are raising prices. Next up, turns out Magnus Carlsen is about as good a chess as 143 ,000 randos. In the largest online chess match ever held, dubbed Magnus Carlsen versus the world, 143 ,000 people working together managed to draw the former world champion in a marathon 46-day game on chess.com that ended yesterday. Carlsen, who was favored heavily to win, said, overall, the world has played very, very sound chess from the start.

24:13Okay, Toby, so they tied Magnus Carlsen, big whoop. How would these 143 ,000 people do against one gorilla? That is a good question, but this was not the first versus the world match that they've had. I mean, it goes back all the way to 1999 where Gary Kasparov played against more than 50 ,000 people on a Microsoft network at that time. He actually won that game after four months. Magnus Carlsen drew, so actually drew, so take that with a grain of salt. But one thing that was interesting, too, is that people in the comments were kind of rallying for one pathway or another because everyone would vote on each move.

24:49and a lot of people were saying like, don't draw. I know we can force a draw. That would technically be a giant win for us, but I want to keep playing against Magnus Carlsen. How many times do you get this opportunity? And then the final thing that we need to caveat this was is that it wasn't classical chess. This was freestyle chess where the bishops and the knights actually get rearranged to start the board at the beginning. So you're not just following these very set opening moves. Carlsen loves playing it because he's basically conquered every other aspect of chess. So he likes this new wrinkle to it.