PayPal enters BNPL sector, page-32

It's not panic selling, it's justifiable selling for the simple reason that PayPal's move renders SZL borderline un-investable, and I'll explain why. Yesterday I incorrectly thought this may not be a problem long-term, but having since researched further into PayPal's product, this is going to be a problem:

1) SZL can kiss goodbye the 'Mom & Pop' SMB market that we're currently charging 6% to. Now that all these stores can offer a near identical product at 2.9% + 30c fee, that is a massive headache for SZL's unit economics. I own an online services marketplace and I can tell you now we would never pay 6% for basic BNPL when we can get it for 2.9%. Yes the PayPal offering may not be as sexy as APT or SZL, but the end-user is unlikely to care - they just want their 4 payments over 6 weeks interest-free. I'm a very big believer in if you are a perfect target customer for a company's product, and you wouldn't use it anymore, why on earth would you hold stock in it and expect millions of others to use it?

2) Enterprise accounts - due to PayPal's integration, right now pretty much every large retailer in America now offers a BNPL solution. They didn't have to do a single thing to get it - it will be sitting there in the PayPal wallet of every PayPal user in America (assuming accounts are in good standing etc). What's more, they got it at 2.9% +30c, or even cheaper if they have a better rate with PayPal. Our hope that SZL would bag some big accounts just got exponentially more difficult.

On IPO day the thesis behind this company was that at a market cap of $400m, high growth rates and a fairly clear path forward, this investment would be worth 2x, 3x or more in a 1-2 year period. That thesis has played out perfectly. The thesis from here is now completely different - it has a market cap of $1.5bln, trading at around 12-15x revenue, a unit economics disaster on its hands, and slowing active user growth numbers in July. For SZL to continue to grow to a materially larger company in the '4 payments' space from here it now needs to take on:
- PayPal 'Pay in 4'
- Shopify's integration with Affirm
- APT
- Klarna
- Zip/Quadpay mash up

And somehow come out as a competitive offering. I won't bang on here about all the issues, but with most of us sitting on gains of several hundred percent it raises the stakes significantly. I think the price could bounce around with traders doing their thing, but with only potentially 1.8m active users by end September and charging a comparatively colossal 6%, SZL may find themselves slowly slip into irrelevancy.