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Where next as Sezzle reports record second quarter results?

We examine the highlights from the company’s Q2 results release.

Sezzle (ASX: SZL) Source: Bloomberg

Sezzle share price rises on Q2 update

The Sezzle (SZL) share price was bid close to 20% higher on Tuesday, after the fast-growing company announced a record set of second quarter results.

As with many other payments and or/e-commerce companies, Sezzle’s Chief Executive, Charlie Youakim said: 'Our strong performance in Q2 is reflective of an improving customer profile combined with an accelerated adoption of eCommerce due to the pandemic.'

Overall, and on a year-over-year basis, for the quarter ending 30 June, Sezzle reported:

  • Underlying merchant sales (UMS) of US$188 million, up 349%
  • Merchant fees hit US$10.6 million, up 397.1%
  • 1.48 million active customers, up 243%
  • 16,112 active merchants, up 219%

In the second quarter, Sezzle also saw repeat usage rates amongst its customers surge to 87.5%; while purchase frequency came in at 15x per annum, for the 2018 user cohort. By comparison, 2019 and 2020 user cohorts recorded annual purchase frequency of 9x and 5x, respectively.

'The undercurrent of organic growth that we are experiencing is exciting to see as our business matures. The gains in repeat customer usage and frequency of purchases by cohorts are key drivers to lower loss rates and great net transaction margin,’ Mr Youakim stressed.

Looking forward, Sezzle’s management said they expected the company’s underlying merchant sales (UMS) to surpass US$1.0 billion by the end of 2020.

In response to this release, the Sezzle share price was bid ~19% higher, by a little after 2:30PM (AEDT), to $4.86 per share – implying a market capitalisation of over $700 million.

This marks a resounding change of fortunes for the company, which, at its 52-week low, traded at just 35 cents per share.

Sezzle’s Q2 results release follows the revelation that Afterpay (APT) – a key competitor in the US buy now pay later market – is looking to raise $800 million in fresh capital.

In a statement to the ASX, Afterpay said it intended to use the funds from the capital raise to expand into other markets, bolster its underlying merchant sales, and shore up its balance sheet, among other uses.

The analyst take

Analysts from the Royal Bank of Canada (RBC) described Sezzle’s Q2 results as strong, reiterated their Outperform rating, though did not change their price target on the stock – which currently stands at $3.00 per share.

Speaking of the outlook for the fast-growing company, RBC analysts argued that ‘The number of customers SZL is adding to the platform now drives sustained growth over the medium term.’

‘SZL appears to be tracking ahead of our expectations as current structural tailwinds benefit, while there remains the possibility of a further stimulus package in the US, which would likely again bolster short-term consumer spending,’ the investment bank added in a research note.

Sezzle last traded at $4.83 per share.

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