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Q2: Sezzle (ASX:SZL) share price just jumped on a rollercoaster ride

The Sezzle Inc (ASX: SZL) share price has soared and crashed this morning. The buy now, pay later (BNPL) business released its 2022 Q2 update. It’s currently up 6%, but it was up around 40% in early trading.

Second quarter announcement

Sezzle reported a small amount of growth in the three months to 30 June 2022.

It said that underlying merchant sales (UMS) in the second quarter increased 1.9% year on year to US$419.1 million. This helped second quarter total income rise by 6.8% year on year to US$29.3 million, representing 7% of UMS.

Merchant fee income represented more than 80% of total income.

As a percentage of UMS, Sezzle’s provision for uncollectible accounts receivable improved to 1.9%, from 3.4% in the second quarter of 2021.

Sezzle also said that the transaction expense as a percentage of UMS improved by 20 basis points (0.2%) quarter on quarter to 2.4%.

Let’s now look at active merchants and active consumers.

Scale increases

The bigger the company is with more merchants and consumers, the closer it can get to profitability and the stronger the network effects of the business can be.

Active merchants rose 19% year on year to 47,900. The number of active consumers rose 18.2% year on year to 3.4 million. Repeat usage improved for the 42nd consecutive month to 93.5%. Sezzle noted that the ‘omnichannel’ opportunity continues to grow, with in-store UMS in the second quarter going up 262.8% year on year.

Sezzle Canada saw ongoing growth, with UMS rising 52.9% year on year, active customers increasing 68.2% year on year and active merchants growing 58% year on year.

Sezzle Premium

In June 2022, the business launched a subscription called Sezzle Premium.

It provides consumers a number of extra features and benefits relative to the company’s core pay in four product. At 27 July 2022, it had more than 47,000 subscribers.

Focus on profit and cashflow

Sezzle said that the company has taken several actions representing “over US$40 million” in expected annualised revenue and cost savings to “improve free cashflow and accelerate its path to profitability”.

The first thing is that it has “offboarded” or renegotiated rates with merchants.

Second, it has improved virtual card network revenue share.

Third, Sezzle has reduced its workforce.

Fourth, the company has scaled back its efforts in Europe and Brazil.

Fifth, it has ceased payment processing in India.

Sixth, Sezzle has reduced its third-party spending.

Finally, it launched the Sezzle Premium offering.

Sezzle expects to see the benefit of these initiatives on a run-rate basis by the year end.

It expects to achieve positively monthly net operating income (excluding share-based compensation and non-recurring charges) by the end of the year. But, it did acknowledge that these could come at the expense of growth. The company thinks this is the prudent thing to do.

Final thoughts on the Sezzle share price

It’s good to see that Sezzle is now working hard to get to breakeven. The business is worth more if it isn’t losing cash every month. The merger with Zip Co Ltd (ASX: ZIP) isn’t going ahead.

Sezzle shares have already soared more than 250% this week, so perhaps it’s not surprising that there has been extreme volatility today. I don’t know if it can keep rising from here. But it’s not something I’m looking to add to my portfolio.

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