June Quarter Results, page-2

Hey mate, thanks for the write up, that's great. I think the company is doing really well but had a different take on a couple of points.
In terms of profitability/driving growth, I actually think the company needs to start spending more of its cash and/or go for a moderate cap raise to turbocharge the growth and acquisition of new merchants. I know the CEO has mentioned about not pursuing growth at all costs, but I'm not sure they have that luxury up against APT, which is outgunning them on pretty much every metric, acknowledging the far higher expenses APT are incurring to achieve that growth. I think it's OK for now, but my worry would be if they don't put the afterburners on now, in a year or two, APT will be so big they will be the BNPL player of choice, with SZL fighting it out for the 2nd spot on a website's checkout, which is not an ideal place to be. I think the BNPL space will definitely be multi-player, but I can't see the majority of ecomm sites adopting more than two BNPL providers on the checkout, could well be wrong and will be interesting to see - we may find that having 3 or 4 is the norm, but I feel if it were me I'd have maybe two to add to the credit card, PayPal, Amazon/Apple Pay others etc. We have to remember site admins are going to have to manage all those payment gateways, so they're unlikely to have 3,4,5+ BNPL providers on there.

In terms of valuation, they're currently sitting around 6x 2020-21 revenue - I think 10x is about right, but you wouldn't normally see that so early in the financial year. These multiples move around a lot - APT has been around 20x for a while, but again now is approx. 23/24x 2020-21 revenue, which is nuts at this point in the fin year - people buying APT now are in for a solid 50% pounding in the coming months. ZiP around 10-12x. So with those markers, I think 10x is about right unless we get news of a major retailer like Target. That puts the stock price somewhere around $7 over the next several months.

My bigger worry around valuation is more that I think with the situation in the US, we're far more likely to see $1.50 - $2 before we see $7 - the US markets have been surprisingly resilient to the worsening outbreaks over there, particularly the news coming out already from Texas and Arizona about overwhelmed hospitals. And we're not even in the Fall yet. I think however when the July jobs report comes in showing that, following on from June, few additional jobs have returned, and in fact they may well have job losses, people will start to realise there is no V shape recovery coming from this, not while the outbreak is still raging. It's tricky at that point to think what will happen to SZL and other BNPL - they've shown to do well through this period, however this rally has seen a lot of momentum/FOMO/short-term traders involved, who all jump out as fast as they jumped in. I don't think we'll see anything as nuts as 35c again, but the BNPL players could easily halve when people realise that at this rate 2020 is essentially a write-off, as opposed to seeing the bounce in Q3 and back to normal Q4. I would argue the excitement about May/June retail sales and employment figures is completely misplaced - it's because millions of Americans all went out and become economically and socially active again that you get those figures, but you also got record breaking infections due to that activity.