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Rocketing growth: Why Sezzle (ASX:SZL) shares could soar

Sezzle Inc (ASX: SZL) has announced its September 2020 quarter update, showing more strong growth.

Sezzle’s strong quarter

Sezzle reported today that its quarterly underlying merchant sales (UMS) reached US$228.2 million. This was growth of 21.4% quarter on quarter and 231.5% year on year.

This also meant that average monthly UMS increased to US$76.1 million, which was growth of 21.4% quarter on quarter and 231.5% year on year.

Sezzle revealed that its merchant fees reached US$13 million for the quarter, up 22.5% quarter on quarter and up 260.6% year on year. Merchant fees were 5.7% of UMS, up by 5 basis points (0.05%) from the June 2020 quarter and up 46 basis points (0.46%) from a year ago.

Active consumers jumped by 21.5% quarter on quarter to almost 1.8 million people – that was an increase of 178.1% compared to a year ago. Active merchants rose 29.7% quarter on quarter to 20,890, which represented a 178.3% increase from a year ago.

Perhaps the most important aspect from the update was that Sezzle’s active consumer’s repeat usage increase to 89% in the quarter. That was a 41 basis points (0.41%) increase from last quarter and a 748 basis points (7.48%) increase from a year ago.

Repeat usage is really important because they are more likely to repay their outstanding balance each time, they will make profit for Sezzle and it means Sezzle’s UMS have a longer term outlook from the existing customer base. Constantly having to replace your customer base wouldn’t be a good factor.

Sezzle said that COVID-19 hardship requests have declined to negligible levels. At the end of the quarter it had US$117.9 million of cash to fund its future growth. Operating cashflow for the third quarter was a negative US$4.7 million.

Management comments

Sezzle executive Chairman and CEO Charlie Youakim said: “We are extremely proud of what they have accomplished in 2020, but we are not done. Our product initiatives and merchant pipeline have never been better and the current quarter has gotten off to a solid start. We believe we are well-positioned, as we head into our strongest seasonal months of November and December.”

Summary thoughts

Sezzle is doing very well at growing the business. I’m not sure how large it can become, but it’s doing really well with all the metrics. Growing customer numbers and a growing percentage of repeat usage is a very good sign. If it was just growing customers and not the repeat usage then that wouldn’t be a good sign for customer loyalty or long term profitability.

It’s also good to see the margin is rising, though I’m not sure that investors should keep expecting growth there because an even higher margin may be unsustainable.

Sezzle may be the best BNPL operator to consider with these metrics. But there are other ASX growth shares like payments business Pushpay Holdings Ltd (ASX: PPH) that could be better buys.

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