Ann: Sezzle Reports Record Third Quarter Results, page-15

I think the Q3 2020 trading update was very strong. I was looking at the key metrics, which appear all be a beat and various KPI's showed even an acceleration versus Q2 2020. This is very impressive and I like that the strongest quarter Q4 2020 lies still ahead!! I Consequently, the share price turning into negative territory is not justified, in my view.

1. Customer adds

• Active customers reached 1.792m which suggests that average monthly customer add's for Q3 20 was 105.6k vs 108.3k Q2 20showing a slight level of easing during the quarter.

2. Value per customer

• Positively, average value per customer came in at ~U$140 for Q3 20, which was 3% higher than RBC has guided, assisting the overall outperformance.

3. Underlying merchant sales (UMS)

• Q3 20 UMS up 232% on pcp U$228.2m, which is 6% higher than broker RBC had in its estimates.

4. Merchant fees

• Merchant fees of U$18.3m was up 265% on pcp (24% on QoQ). This implies a ~5.8% merchant fee margin for Q3 20, which marks an acceleration versious prevoius quarters (vs 5.6% in Q2 20, 5.2% in Q319)

Thus, the outlook was confirmed, which is very positive, in my view - especially considering the Paypal entrance.
The company reiterated the annualized run-rate in UMS exceeding U$1b by the end of 2020, implying ~U$250m a quarter. SZL has been run rating at ~U$912m for 3Q20 and US$986m in the month of September and remains well positioned for the seasonally high 4Q20.

In other news, things appear to be progressing into right direction.

• New products launched in Q3 20 include Sezzle Up, Sezzle Anywhere, Sezzle Spend and in-store capabilities through the virtual card or direct POS integration.
• New market entry into India, with a soft launch in July. Initial feedback positive, with management continuing to observe consumer payment performance to determine next steps. SZL is only BNPL option being tested in India.
• Product partnership with Ally Lending (the lending arm of Ally Bank, subsidiary of Ally Financial) expected to begin in 1Q21 for an initial term of 5 years to provide consumers longer length and higher limit installment-loans (up to 60 months and U$40k per installment).

CIted from RBC, the fundamental view.

RBC Fundamental View
We have a last published Outperform (Spec Risk) rating on SZL, with an A$11.00/share price target. The month of September was very strong doing US$82.2m (+11% on Aug) and shows continued month on month increases in top line UMS through the year. Furthermore, the number of customer adds in 3Q remained roughly consistent with 2Q, which saw a material step-up. With SZL’s value per customer coming ahead of our estimates in 3Q20, we believe the improving frequency and spend per customer trajectories can translate into strong UMS trends. Today’s update also indicates annualized run-rate in UMS exceeding U$1b by the end of 2020, implying ~U$250m a quarter which we are of the view is achievable in the seasonally strong 4Q, given the current run-rate. We feel SZL is tracking ahead of our expectations as current structural tailwinds benefitting, although the risk of the growth easing due to less stimulus in the coming months is not to be discounted. Given SZL’s current scale and merchant skew to SMB, successfully adding larger and enterprise merchants to the platform would materially move the dial.