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Sezzle share price skyrockets following key regulatory decision

The fast-growing BNPL company today revealed that its application for a Californian lending license has been formally approved.

Sezzle share price: a full-circle rebound

Sezzle (ASX: SZL) saw its share price rise as much as 21% this morning – after it was revealed that the company's application for a Californian lending license had been approved by the Californian Department of Business Oversight (DBO).

Reflecting on this approval – Charlie Youakim – Sezzle's CEO and Chairman said:

'We are thankful to the California Department of Business Oversight for their prompt and open approach to resolving this matter in such a timely and professional manner. This is a great result for Sezzle and provides the platform for us to continue our planned growth strategy in the state of California.'

Sezzle noted that it was previously operating under a ‘retail instalments structure’, opposed to a direct lending structure. Ultimately, this freshly approved lending license application will facilitate a 'transition of services from this prior structure to the direct lending structure,’ noted the company.

On an intra-day high of $2.18 per share – at their peak today, Sezzle’s shares traded approximately 86% ahead of their January-lows.

Thoughts on investing: the Sezzle case

‘The stock market is a device for transferring money from the impatient to the patient,’ said Warren Buffet.

Markets may indeed be many things: a vehicle for speculation, for long-term wealth building, and most interestingly: a measure of irrational behaviour – with both greed and fear being the most dominant of these characteristics.

Sezzle’s recent price action is indeed a case study in investor fear at its most extreme.

When news broke that Sezzle's (ASX: SZL) application for a lending license in the US state of California had been rejected: its share price tanked. Investors turned bearish, with the stock dropping from around the $2.10 mark to a nihilistic low of $1.170 per share (at one point).

What makes this bearishness so interesting is the fact that the full-implications of Sezzle having its lending license rejected by the DBO in the first instance was never fully clear. Though Sezzle’s management team did indeed try to reassure the market, during the pandemonium it seemed to have little impact. Investors would also do well to remember that Sezzle has operations focused in more than just one US state.

Adding to that: Afterpay (ASX: APT), a leading BNPL player (also with US operations) had in November 2019 received approval for its own Californian lending license from the DBO.

Afterpay and Sezzle operate under the same BNPL business model.

And then there’s the other side of this situation. When Sezzle announced that the company was 'confident that we have a path to resolution in creating a successful application for a State of California Finance Lender License,’ the stock jumped just as aggressively as it had fallen.

It jumped again today as we noted at the start: now trading up double-digit percentage points – back to pre-lending license knock-back levels.

Ord Minnet still has a BUY rating and a lofty price target of $3.40 per share on Sezzle. A view that didn’t change in the last month.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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