The Sezzle Inc (ASX: SZL) share price is under the spotlight after reporting its FY21 result and receiving a takeover bid.
Sezzle is a buy now, pay later business that is operating mostly in the US.
My colleague, Lachlan Burr-Jensen, has already covered the takeover bid by Zip Co Ltd (ASX: Z1P) for Sezzle.
Sezzle FY21 result
Here are some of the highlights from the 12 months to 31 December 2021 for Sezzle:
- Active merchants increased by 76% to 47,000
- Active consumers rose 52.4% to 3.4 million
- Total income jumped 95.3% to $114.8 million
- Operating loss worsened by 147% to $68.7 million
- Net loss after tax jumped 132% to $75.2 million
The company saw some of its operating expenses increase at a faster pace (in percentage terms) than the total income grew, such as the third-party technology and data, marketing and general expenditure.
But the category that had the biggest impact on the loss increasing was the 168.6% increase in the provision for uncollectible accounts to $52.6 million.
Sezzle reported that it had benefited from the tightening of credit to consumers as well as the overall improved collections driven in part by the US government stimulus payments offered to many consumers through the CARES Act, but not anymore. The lower provision was offset by increased losses associated with testing various credit underwriting strategies with enterprise merchants.
The buy now, pay later ASX share said that its non-integrated product offerings with enterprise merchants drove ‘adverse selection’. Enterprise merchant volume also grew as a percentage of total volume.
What is Sezzle going to do about it?
Sezzle said that it has implemented and is continuing to implement processes to reduce loss rates.
During the third quarter it improved its recoveries process. In September 2021 it also began requiring a debit or credit card on file to make the initial instalment payment with selecting to pay via ACH, which substantially reduced its first payment loss rates.
It’s also continuing to work with enterprise merchants to integrate its product, which will further reduce loss rates.
Summary thoughts on the Sezzle share price
It seems to be a similar story in the BNPL world. The growth continues, driving revenue higher. But the accounting losses are also getting bigger. Will they ever make a profit? I’m not sure. Investors have punished the share prices.
The Sezzle share price is down 82% over the last year. The 22% premium that Sezzle investors will get seems pretty attractive against the last trading price, but the price represents a long way down compared to last year.
There may well be a strong recovery ahead, but there’s lower profitability and more competition, as well as increased risk of regulations. Things are looking tougher, and it may not be a short-term turnaround. There are other ASX growth shares I’m focused on.
