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Down 33%: Is the Sezzle (ASX:SZL) share price a cheap buy now?

The Sezzle Inc (ASX: SZL) share price has dropped by around 33% in under a month. Could that mean that it’s now a cheap buy?

What’s happening to the Sezzle share price?

The entire buy now, pay later sector has been sold off in recent weeks, it’s not just Sezzle.

Over the last month, the Afterpay Ltd (ASX: APT) share price has dropped about 33%. The Zip Co Ltd (ASX: Z1P) share price is also down by almost 40%. Ouch.

I’ve been saying for a while that the buy now, pay later sector doesn’t make much sense if you try to value it on conventional metrics.

It was only a few weeks ago that Sezzle announced its FY20 result which showed strong levels of growth. Underlying merchant sales (UMS) grew 250.8% to US$856.4 million and total income went up 272.1% year on year to US$58.8 million.

Even when compared to revenue, the Sezzle share price still has a high valuation.

The rest of the Sezzle report showed improvement. Active consumers went up by 143.9% year on year to 2.2 million and active merchants went up by 166.6% to 26,700 at 31 December 2020.

Total income as a percentage of UMS improved by 39 basis points (0.39%) to 6.9%. The net transaction margin improved 120 basis points (1.20%) to 1.4% of UMS, or US$12.4 million – up from US$0.6 million in 2019.

There was a 50 basis point (0.50%) improvement in the cost of income (mostly due to lower processing costs), about a 30 basis point (0.30%) decline in net transaction losses, and an increase in Sezzle income as a percentage of UMS (30 basis points – 0.30%). The enhancements of the margin are attributed to the company’s improving consumer profile, which experienced favourable trends in repeat usage, frequency of purchases, and overall payment performance.

Is the Sezzle share price worth buying?

Sezzle said that 2021 has started strongly with UMS of US$117.8 million in January, an increase of 65.1% above the average monthly performance in 2020 and the company’s best monthly performance on record.

Having said all that, I’m not sure that Sezzle shares are worth buying at this stage. There’s so much competition in the US and I’m not sure if Sezzle will be one of the ones to be a leading player in five or so years. Today’s price still reflects a fair bit of optimism about Sezzle’s medium future.

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

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