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The Sezzle share price falls another 16% as investor panic worsens

The Sezzle share price continues to drop after the company yesterday announced that its application for a Californian lending license had been rejected.

Sezzle share price in focus Source: Bloomberg

If not efficient, markets are at the very least quick to react when the situation calls for it.

Yesterday when it was revealed that Sezzle’s application for a lending license in the US state of California had been denied by the Department of Business (DBO), investors reacted by knocking off 20.813% from Sezzle’s market cap.

That decline likely wasn’t helped by headlines like: ‘US targets illegal buy now, pay later schemes,’ from the Australian Financial Review.

Sezzle’s PR team looks to have tried to reassure the market this morning, releasing a short statement just a half-an-hour before the market opened.

Here, the company clarified that:

'The DBO statement states that Sezzle had engaged in "illegal unlicensed lending in the state."' (Sezzle's emphasis added.)

Sezzle also reiterated that the company’s 'position is that it does not operate as a lender but under a different financing model as a sales finance company and does not makes loans.'

The market looks to be unsatisfied with such a position, or potentially concerned over the full (but at this point uncertain) implications of this regulatory blow. Regardless, investor panic worsened today, as the Sezzle (ASX: SZL) share price dropped another 16%.

Prior to this news, the Sezzle share price traded at the $2.10 mark – some 72% ahead of its IPO offer price. The last two days have now taken SZL down as low as $1.39 per share – with its market capitalisation dropping in-step to $294.67m.

Sezzle now floats closer to its IPO offer price of $1.22 per share.

Sezzle share price: a success and a stutter

This sharp investor sell-off comes after what many would describe as a highly successful year for the recently listed Sezzle.

Launching its IPO in July 2019, the stock was initially met by significant fan-fare – skyrocketing 82% on its first day of trade alone.

Momentum continued to build for the young company, with Sezzle adding 214,611 users during Q3 alone.

As the company’s CEO Charlie Youakim said at the time:

'The September Quarter represents our first quarter as a listed company, and we are very pleased to report ongoing strong results. The Company's operational metrics grew circa 50% quarter-on-quarter, while the key financial metrics continued to show marked improvement.'

Other deals, including Sezzle securing an up-sized US$100m debt facility also looked to be an optimistic indicator for the company.

Yet as is often the case with stocks running on high valuations, the emergence of yesterday’s negative news lead to a sharp sell-off.

That is the vital point here though: the full implications of the DBO rejecting Sezzle’s application for a lending license in the state of California are ultimately unknown.

Sezzle did indeed promise that: 'We plan to continue to work with the DBO to correct any issues so that we can proceed with our plans to develop a loan product there.'

Markets though, whichever way you cut it, aren’t fond of uncertainty.

And the current Sezzle situation represents just that: uncertainty.

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