Sezzle (SEZL) has been among the breakout stars of 2024. Its shares skyrocketed from $16 to over $477 before returning to $255, still an impressive 1,142% gain year-to-date. The disruptive fintech firm offering buy-now-pay-later (BNPL) solutions has successfully provided unconventional credit alternatives and adaptable payment plans, which have become particularly popular among younger, underbanked consumers.
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However, not everyone is impressed. Notorious short-sellers Hindenburg Research issued a report earlier in December calling the company a failing BNPL platform, taking some wind out of Sezzle’s sails and sending the shares falling -34%. Whether this latest chapter presents investors with a window of opportunity to buy on the dip or is, an initial salvo in unmasking an unsustainable business has yet to be determined. Investors may want to observe further developments (like Q4 earnings) before deciding on the stock.
Sezzle Leads BNPL Trend
Sezzle is a technology-enabled payments company operating chiefly in the United States and Canada. The firm offers payment solutions both in-store and online. It provides an alternative to traditional credit by allowing consumers to purchase goods at the point of sale and pay in installments over time. The company offers other payment options like Pay-in-Four, Pay-in-Full, and Pay-in-Two. The company is also involved in long-term lending in cooperation with third-party lenders.
Sezzle’s unique business model is primarily responsible for its growth. It lets users make interest-free installment payments at select partner stores and offers subscription plans to avoid service fees for shopping outside the established network. These subscriptions, priced between $12.99 and $17.99 per month, have been immensely popular, with a remarkable growth of 152% year-over-year in active subscribers, totaling 529,000 per the last reported earnings. The increased engagement with the platform underlines the company’s success in retaining customers within its ecosystem and successfully cross-selling other financial products.
Recently, the company announced a partnership with Bealls Inc., enabling Bealls shopping guests to use Sezzle’s flexible payment options online and in over 650 stores, enhancing the holiday shopping experience.
Bealls introduction of the Buy Now Pay Later (BNPL) option provided by Sezzle underscores the trend that is proving pivotal for both shoppers and merchants. A recent survey revealed that over half of shoppers planned to increase their holiday spending this year and are open to turning to flexible payment options as a practical solution to stay on budget. The holiday season is an essential period for merchants to attract new customers, and BNPL options are increasingly deciding where customers shop. Last year, the holiday season saw a record for BNPL transactions with $16.6 billion in online BNPL purchases, a 14% increase year-over-year.
Q3’s Numbers Were Robust
The Q3 2024 financial results indicated notable performance for the company, with a record 40.6% increase in Underlying Merchant Sales (UMS) year-over-year, reaching $659.9 million. This upsurge surpassed the previous quarter’s record, attributable to increased consumer engagement that saw purchase frequency grow from 4.1 to 5.4 times year-over-year, while active subscribers grew to 529,000. Total revenue rose by an impressive 71.3% year-over-year to $70.0 million, setting a new record high for revenue as a percentage of UMS at 10.6%.
However, total operating expenses also increased, rising 38.4% to $49.1 million. Despite this, the company celebrated a 289.6% increase in operating income year-over-year, resulting in a fresh record high of $20.8 million. Net Income amounted to $15.4 million, with earnings per share (EPS) of $2.92.
The quarter ended with a cash and cash equivalents balance of $88.3 million and an outstanding principal balance of $95.0 million on its $150.0 million credit facility.
The company’s management has revised its FY2024 guidance upward, projecting a net income of $71.5 million, a sizable jump from the previously predicted $55.0 million. Consequently, the adjusted net income per diluted share is expected to be $9.80, up from the initial estimate of $6.75.
Not Everyone Is Impressed
Sezzle’s shares plunged over 30% after short-seller Hindenburg Research accused it of implementing high-risk lending methods and misleading investors. The report contended that Sezzle borrows money at a 12.65% interest rate to lend to high-risk consumers and has actually experienced a decrease in active merchants since 2021. Hindenburg also criticized insider stock sales and undisclosed margin loans by the CEO. The firm also alleged inflated subscription revenue at Sezzle, leading to customer complaints. Hindenburg claimed that Sezzle’s current valuation is unsustainable, predicting a doubtful long-term survival.
Not everyone agrees with Hindenburg’s assessment. Northland analyst Mike Grondahl, a five-star analyst according to Tipranks’ ratings, responded by increasing the price target for Sezzle’s shares from $300 to $360 while reiterating an Outperform rating, noting the potential buy on the dip opportunity following the short report targeting the firm.
Sezzle is rated a Moderate Buy based on two analysts’ recent recommendations. Their average price target for SEZL stock is $366.00, representing an upside of 43.53% from current levels.
SEZL in Summary
Sezzle’s meteoric rise made it a headline-grabber in 2024. Despite a recent setback stirred by controversial short-sellers, its ability to offer adaptable payment plans and convenient credit alternatives appears to have found solid footing among today’s younger consumers. Recent partnerships, record-breaking Q3 results, and the upward revision of FY2024 guidance further amplify its momentous growth. Concerns from naysayers and the impending Q4 results both warrant cautious observation.
