Hello all,
Starting a new thread to discuss the June quarter results. In their last announcement, end of May key metrics were:
· Active customers: 1.3m
· Merchants: 14,900
· UMS: May slightly higher than April (which was at $58m)
So I’m expecting them to announce:· Active customers at 30 June: 1.4m
· Merchants at 30 June: 16,000
· UMS in Qtr: $176m USD
· Merchant Fees in Qtr: $10.0m USD
IMO, this is phenomenal growth. We are talking about 50% QoQ growth in UMS or 300%++ YoY. Growth in new merchants and active customers is accelerating. However, we need to bear in mind that Charlie Youakim that said that they were nottargeting growth from Sezzle in the June quarter. It was about managing the NTM in the face of COVID, supporting customers and continuing to set Sezzle up for a coming expansion. They’ve tried to hold the reins in on this business, but it can’t help but achieve this growth. One of the reasons I’m so optimistic about Sezzle is the potential for growth when they do let it run.
It is clear that this explosive growth will come from the new products announced – Sezzle Anywhere; Sezzle Up; Sezzle In-store and Sezzle Spend. This growth will be on-top of the 50% QoQ growth they are achieving organically from their Canadian and US operations.
Sezzle Anywhere will be massive. One of the missing links for Sezzle has been the lack of big brands on the platform. But as they announced at the Morgan Stanley conference, customers will soon be able to Sezzle at Nike, Sephora, Home Depot, Zappos, GAP, Nordstrom, Bed Bath and Beyond etc. This product will drive significant customer and UMS growth, which I don’t think is priced into the SP.
Sezzle Up is also key. When launched, which I think should be soon, I believe it will also lead to a re-rating, but also be a source of long-term value and competitive advantage. Sezzle Up allows the preferred customers (really anyone who has used Sezzle once and successfully paid for the item) to access larger merchants such as Target. They have all but announced Target, but I look forward to the day, because it will validate that Sezzle can directly support enterprise merchants.
But the best thing about Sezzle Up is the embrace of credit. It is designed to support customers in building their credit rating and financially empower them. This point of differentiation to other BNPL players will lead to long-term success in North America. Sezzle is a mission-driven business, recently announcing it has been certified as a Public Benefit Corp. This commitment to its customers and merchants, combined with its US roots (unlike its competitors, enabling it to better understand its customers), will serve its long-term success. It a big statement, but it is not impossible that Sezzle could reach 30 million customers in North America one day.
Sezzle Spend is their soon to be launched rewards program. Reward programs build engagement and engagement uplifts growth in UMS, not to mention shareholder value! What I like about it is that it will be used for customer acquisition. Customers will be queuing up for a free $10 gift card (or whatever the promo is) gained by joining Sezzle! Sezzle has been very reluctant to spend money on marketing to this point, but this will be a welcome change, turbocharging their growth.
Their last new product, Sezzle In-Store, uses a virtual card to enable offline and online transactions. I think this product is the final piece, for now, in transforming Sezzle into comprehensive payment solution that will enable extreme growth. My argument is that this growth possibility isn’t factored into its share price.
It sounds crazy, but I think Sezzle has the potential to ultimately be as large as Afterpay in North America (not globally though). I must disclose, I do hold a material investment in Afterpay and am confident of its international success. But I do believe that this is not a winner-takes-all game. I think merchants will be open to multiple BNPL providers if it means additional sales. And customers will be open to multiple BNPL providers if it more additional credit and access to additional stores. Just like how customers and merchants use / accept multiple credit cards.
Putting a valuation on a BNPL player is a difficult task. They all have a lot of potential, but there is a lot of execution risk. In light of this, and noting the market’s inability to value exponential growth, let’s not think too far ahead. A few months ago, on this forum, I threw out $3.60 for Sezzle, which was quickly exceeded. I’m now going to put forward $10 as a target for the end of the year (which is a $1.8bn market cap). The potential is clear, but it is the execution that will yield the SP gains. The reasons why I think one of the market’s best performing stocks since COVID still has significant upside are:
· It has now reached a critical mass. 1.4m customers, over $1bn AUD in annualised UMS, 16k merchants.
· The up-tiering of merchants (signing up larger merchants) in the last quarter is a positive sign. This is recognition of the critical mass being achieved, and also validation of what the company stands for.
· It has a first-mover advantage in Canada, already gaining good market share and has signed up key merchants. Sure, Affirm is in Canada, but I don’t consider it to be a true competitor to the other BNPL players.
· It has more merchants in the US than its peers. While they are typically smaller merchants, we know that the new products will deliver the enterprise merchants it has been missing. The volume of merchants creates strong network effects and a competitive moat for the business.
· It is growing faster than its peers, despite not prioritising growth.
· Blue-sky potential, for example, from a takeover, a new strategic investor, a landmark merchant or opening in a new territory.
· I expect it to surprise the market with its profitability. I won’t be surprised if it was profitable in the June quarter. No one expects BNPL players to be profitable at this point in their growth cycle. But Sezzle has experience significant revenue growth, with much slower growth in its cost base. Meanwhile, NTM has continued to trend up this year, which is its key driver of profitability.
Keen to hear your thoughts!
