Sezzle Inc. (SEZL) - The Simple Truth
All you need to know from my 3000+ word Sezzle Deep Dive. Distilled into 3 minutes.
I write 20-page deep dives because I love digging into the numbers.
But I create these ‘Simple Truths’ summaries because I know not everyone have time read my ultra-long content.
My goal is simple: I do the hours of heavy lifting (stripping away the corporate jargon and complex tables) to hand you the pure signal.
Here is my full research on Sezzle, distilled into a 3-minute read that respects your time.
1. The Napkin Pitch (The Hook)
The One-Liner: A “Buy Now Pay Later” lender that is successfully pivoting into a subscription business, but currently trades at a massive discount because the market is terrified of its credit risk.
The “Back of the Napkin” Thesis:
They just hit their first $1 Billion sales quarter.
They are profitable (Net Income of $26.7M in Q3).
The stock has crashed ~60% from its highs ($182 to $69).
The Bet: If they can keep credit losses below 2.75% while growing subscriptions, the stock is a bargain. If they can’t, it’s a “value trap”.
2. The Lemonade Stand (Business Model)
Think of Sezzle like a digital layaway counter for online shopping. They pay the store for your shoes, and you pay Sezzle back in 4 interest-free chunks over 6 weeks.
What they sell:
Credit: The core BNPL service.
Sezzle Premium: A “club membership” (subscription) that gives users perks.
How cash enters the building: They take three distinct bites of the apple:
Merchant Fees: Stores pay Sezzle a fee to process the sale.
Subscription Fees: Users pay a monthly fee for Sezzle Premium ($24.3M revenue in Q3).
Consumer Fees: Late fees and convenience fees ($33.5M revenue in Q3).
3. The Moat (Why They Win)
Sezzle doesn’t have a “fortress” moat; they have a Habit Moat. They are betting that if you subscribe to their service, you will check the Sezzle app before you decide where to shop.
The “Toothbrush Test”:
Pass: They have ~600,000 Active Subscribers who pay monthly.
The Stickiness: Subscribers order 10x more often than non-subscribers. This creates a recurring revenue base that is much safer than one-off transaction fees.
4. The Price Tag (Valuation)
Current Price: ~$69.00 | Market Cap: ~$2.4B
The market is currently pricing Sezzle like a risky lender, not a tech company.
P/E Ratio~19.9x
You pay roughly $20 for every $1 of reported profit. This looks cheap for a growth company.
P/FCF~33.6x
It would take ~34 years of actual cash flow to pay back your purchase price. This is expensive because they are spending all their cash to fund new loans.FCF
Yield~3.0%
This is lower than a savings account. The cash yield is low right now because they are aggressively reinvesting to grow the loan book.
The Cash Verdict:
The massive gap between the P/E (19.9x) and P/FCF (33.6x) exists because their cash is tied up in “Notes Receivable” (loans to customers). If those customers pay back their loans, that cash comes flooding back in, and the stock is cheap. If they default, that cash is gone forever.
5. The Money (Financial Health)
Profitability: They are printing accounting profits. Net Income was $90.4M for the first nine months of the year. Margins are fat, with an Adjusted EBITDA margin of 33.9%.
The Balance Sheet: It’s simple but leveraged.
Assets: $134.7M in Cash vs. $184.1M in Loans (Receivables).
Debt: They have drawn $117.3M on their credit line.
The Warning: They only have $32M of “unused capacity” left on their credit line. If they grow too fast, they will need to find more money quickly.
6. Skin in the Game (Management)
The Driver: Charlie Youakim (CEO). He is the co-founder and largely responsible for the company’s pivot to profitability.
The Alignment: Youakim owns approximately 43% of the company. This is massive insider ownership. If the stock drops, he loses a fortune, so he is highly incentivized to avoid blowing up the company.
Capital Allocation: Management bought back $34.6M of stock this year, proving they believe shares are undervalued.
7. The Bear Case (Risks)
The Kill Switch (Credit Spiraling): Management admitted they “widened the net” (lowered standards) to get more customers. This caused credit loss provisions to jump to $32.2M in Q3. If they lowered standards too much right before a recession, profits will vanish.
Regulatory Risk: A large chunk of revenue comes from “Consumer Fees” ($33.5M) and “Late Fees” ($21.0M). Regulators (like the CFPB) hate late fees. If these get banned, Sezzle loses a major profit engine.
Seasonality: Q4 is typically the “danger zone” for credit losses as shoppers overspend for the holidays.
8. The Summary
I like this stock because it is a rare “profitable growth” story trading at a beaten-down valuation. The pivot to a subscription model (Sezzle Premium) is brilliant because it reduces reliance on merchant fees.
However, the “Cash Price” (P/FCF) is high because they are stuffing every spare dollar into new loans.
The Bottom Line:
Buy if: You trust their algorithm to pick customers who will actually pay them back.
Avoid if: You believe the economy is heading for a hard landing where people stop paying their bills.
While the subscription business is the headline, Sezzle has a hidden “Merchant Payable” float of $43 million. This is essentially an interest-free loan from their own merchant partners that funds their operations.
Do you enjoy complex Deep Dives distilled into a simple 3-minute read? ⏳
Do a friend (and me) a huge favor: Forward this to a busy investor who values quality over quantity.
Disclaimer:
I Am Not Your Financial Advisor: I am a researcher sharing my homework, not a wealth manager giving you a plan. This is for education, not a recommendation to buy or sell.
I Am Biased: SEZL 0.00%↑ is one the largest positions in my personal portfolio. I have skin in the game and I want this company to win. Read this with that in mind.
The Golden Rule: It is your money. Do your own due diligence, read the actual filings, and never invest money you cannot afford to lose.