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Zip (ASX:Z1P) share price jumps as Sezzle (ASX:SZL) deal canned

The Zip Co Ltd (ASX:ZIP) share price is on watch after the BNPL business announced that the merger with Sezzle Inc (ASX: SZL) was abandoned. 

The Zip Co Ltd (ASX: ZIP) share price is up 10% after the buy now, pay later business announced that the merger with Sezzle Inc (ASX: SZL) was abandoned.

Sezzle is a US-focused BNPL business, while Zip has a growing global presence in areas like Australia, North America and Europe.

BNPL wedding is off

Prior to today’s movement, the Zip share price was down 94%.

Zip said that “in light of current macroeconomic and market conditions. Zip and Sezzle have mutually agreed to terminate the merger.”

Zip said it’s firmly focused on its strategic plan and accelerating its path to profitability. Management said that its underlying business remains strong with “consistent customer and transaction volume growth across core markets” as well as a “solid” pipeline of enterprise merchants joining the platform.

The buy now, pay later company confirmed it’s well capitalised, meaning it has enough money, to execute its strategy and it still expects to deliver profitability in FY24. So that means it’s at least 12 months away. Making profit could be key for the Zip share price.

Leadership comments

Zip Chair Diane Smith-Gander said:

We believe that mutually terminating the merger agreement with Sezzle at this time is in the best interests of Zip and its shareholders, and will allow Zip to focus on its strategy and core business in the current environment.

Sezzle’s side

Sezzle also made an announcement. It said that it will receive $11 million from Zip US to cover costs like legal and accounting related to this transaction.

Sezzle also said that it’s “laser-focused” on its strategy and execution. It’s driving toward profitability and free cash flow.

It also revealed some preliminary numbers for the June 2022 quarter. Underlying merchant sales (UMS) is expected to be between US$415 million to US$420 million, up slightly from US$411.1 million in the June 2021 quarter.

Total income for the second quarter is expected to be between US$28.5 million to US$29.5 million. Second quarter total income minus transaction related costs (including transaction expense, provision for uncollectible accounts and net interest expense) is expected to be between US$8.5 million to US$9.5 million.

At 30 June 2022, it had US$71 million of cash on hand and availability on its line of credit facility.

Final thoughts

It’s not surprising the Sezzle share price has sunk around 30% in response to this, considering the premium that Zip was going to pay.

The BNPL sector needs to get to profitability when it can, so hopefully both of them can achieve that sooner rather than later.

It’s possible that both of these businesses could be cheap. But, the rising interest rates hurts the potential margin considering interest is a key cost. More regulation and strong competition isn’t good news.

There are other ASX growth shares I’m looking at right now.

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