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Can the Sezzle (ASX:SZL) share price maintain its sizzle?

Sezzle Inc (ASX: SZL) shares traded down 3% on Friday after the BNPL company released its final quarterly update for FY20 (Q4FY20) packed with growing metrics.

What does this mean for its future?

The Sezzle share price has fizzled out a little since its peak in August 2020, however, key operating metrics reveal continual growth.

Sezzle is a US-based buy now pay later provider that operates from the US, Canada, and looking to spread its wings across India. It is similar to Afterpay (ASX: APT) except Sezzle offers the option to reschedule a repayment to avoid a US$10 late fee. Sezzle customers are granted one free reschedule option per order, and two $5 reschedules after that.

SZL share price

Source: Rask media SZL share price chart

What happened in the last quarter of FY20?

Merchant metrics

The underlying merchant sales (UMS) for this quarter increased by 205% year-over-year (YoY) and 40.6% quarter-on-quarter (QoQ) to US$320.8 million.

The average monthly UMS surged US$30.8 million, relative to the last quarter, evidencing the rise in retail spending likely caused by a combination of Government stimulus and border restrictions.

The number of active merchants on Sezzle’s platform also rose by 166.6% YoY and 27.8% QoQ to 26,690.

Sezzle also noted merchant fees as a percentage of UMS had marginally declined from 5.4% for this quarter compared to 5.5% for Q4FY19. This decrease is a reflection of Sezzle’s strategy to penetrate the large enterprise segment, where lower merchant fee rates are offered in the hope of a higher volume of sales.

One recent large enterprise client acquisition is the hotly talked about US stock, GameStop Corp. (NYSE: GME), the world’s largest retailer of video games.

Customers

Sezzle reported that its customer profile continued to improve as active repeat usage had risen to 89.8%, and is a key contributor to lower loss rates. Repeat usage means customers enjoy a company’s product because it solves a problem.

The company also rolled out its first large-scale marketing campaign over November and December, which more than doubled the daily downloads of its app and social network followers on Instagram, Linkedin, Facebook (NASDAQ: FB), and Twitter.

Cash outflows

Sezzle’s total cash on hand declined by US$28.8 million during Q4FY20, represented by US$22.2 million applied to operating activities and US$6.4 million utilised in financing activities.

Around a third of the operating expenses is attributed to staff, advertising and marketing costs due to Sezzle’s push to attach large enterprise clients and it continues to scale its operations in technology, customer support, and sales and marketing.

Payment processing fees make up another third of total operating costs, totaling US$7.7 million for the quarter.

All these costs rose compared to the prior quarter. However, such costs are often necessary to gain market/merchant share, especially in such a fast-moving industry.

Will it continue to sizzle… or will it fizzle?

Sezzle is continuing to make big strides in growing its merchant/retailer base. But it’s coming at a significant cost, as it recorded higher costs since the last quarter.

I think Sezzle’s ability to manage its transaction costs will remain the key to unlocking future profitability, as other operating costs can be relatively controlled once it has secured a significant share of the merchant market.

It seems Sezzle is a fair way off from hitting an inflection point given it is focusing on capturing the large enterprise space.

Instead of Sezzle, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.

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At the time of publishing, Raymond does not have a financial or commercial interest in any of the companies mentioned.

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