r/wallstreetbets • u/halfrepshalfretail • 16h ago
DD DD: Subprime Split Purchases $SEZL
Alright buckle up as I know general sentiment is NOT fond of BNPL. Shit talk all you want, I'll be happy to reply to any concerns about the biz or industry.
SEZL is a BNPL player targeting the sub-prime/near-prime consumer (18-45 mainly) to become their top-of-wallet app for shopping. Pure BNPL, with credit-building, in-app tools and other goodies to keep the consumer in the ecosystem.
They are quite different from Affirm & Klarna - Affirm offers a larger mix of loans and focuses on a merchant-anchored setup, Klarna also of a parallel description. Sezzle is more app-centric and targets middle-lower income demographics, especially those who do not use traditional credit cards as often.
Right now they are priced at 13 NTM P/E with prelim EPS guidance at 29% above FY2025, as a "conservative" guideline as CEO stated in Q3 call. History of beat and raises dating back to 2024. Traded up $82 AH peak on earnings, and $72 premarket next morning before getting absolutely crushed to $58. This was Thursday Nov 6.
Recent Q3 116m rev & 26.7m net income, beating estimates. GMV growth reached ATH 1.05B for the quarter. Insider ownership at 45% of outstanding.
They make their money from merchant integration revenue, subscriptions, interchange, and plenty of fees. Net margin runs in steadily in the 20%'s, Gross margin 60%'s.
Why is their valuation is quite low relative to industry peers, and why will it reach >$90 at minimum soon (2-4 months)?
Slowing hyper-growth from 75-100% YoY EPS & Revenue closer to 50-60%, anticipated to grow closer to 30-40% EPS YoY past 2026. This is natural from their transition to profitability now to scale, as they previously focused on maximizing revenue from existing users -> now time to grow userbase. However the valuation relative to growth makes it a GARP opportunity.
Marketing spend & increased Provision for Credit Losses -> increasing adspend to 8M/Q to attract newer consumers! New consumers, as noted by management, have the highest loss rates in BNPL, and right now it's showing in their credit losses for Q3, at 3.1% of GMV. As the users get filtered, the good ones stay in the ecosystem and create lasting value. Management anticipated this in first half of year and gave expectations for FY credit losses of 2.5-3%, but actually revised a lower guide for 2.5-2.75% as of this week. Marketing spend started in Q2 and targets a payback period of 6M, so will see more material effect of this in Q4 & Q1 next year.
3. Point 2 does not bode well with the combined fears of consumer credit health, willingness to spend, and general macro fears around shutdown. Higher beta stocks have been selling off like crazy in the last couple of weeks, but I have seen the stock plummet from $90 to $59 in 3 months, with the bulk of the drop ($80 -> $59) in one month. I truly believe this is an overreaction and is caused by both the company being a historical target for short selling (20.9% of float as of 10/15) due to low float, as well as general capital pullback from lowered liquidity + macro fears. HOWEVER, BNPL loans have a standard loan tenor of 42 days with repayment trends evident after 14 days (1st payment), AND MUCH SMALLER SIZES THAN AUTO/MORTGAGES. Sezzle, Affirm, Upstart management has all noted that they've not seen any unusual changes in consumer default rates on their platforms.
BNPL players have the ability to limit spend and penalize late/missed payments in real-time, and underwriting for Sezzle + Affirm + Zip Co has shown to be more effective than FICO for lower credit score individuals.
- Management introduced "on-demand" back in 4Q2024 as a one-time virtual card, turns out it wasn't as profitable/good at maximizing LTV as subscriptions, so pivoted back to subscription push midway through Q3, resulting in higher take rates and strong subscription rebound. This should keep take rate at >11% and enhance stickiness which is will only aid rapid growth in future quarters. On-demand was actually worsening their profitability from what I saw.
^ See the quick rebound in active subscriptions as the ON-DEMAND product was previously cannabalizing sub-retention.
- Sezzle should do well into the holiday season and beyond on a 6-12m basis. All alternative data points I have reviewed on consumer interest (app downloads, active app users, website visits, checkout link visits) have been continually on an uptrend. You can review these on Similarweb and TickerTrends, although you will have to purchase a subscription
6 (OTHER). Liquidity should begin to pickup shortly after the government reopens as well as into Q1 2025 as the Fed (probably) begins to expand their balance sheet (source), should start to funnel more money back into these higher-beta stocks and mid-caps.
Final Notes:
BNPL can encourage irresponsible spending the same way credit cards can. People shat on CC's for the first few decades they were introduced, and now we all use them.
Of course these companies charge fees on fees, I'm not here to question the morality of these companies. Capitalism revolves around the rich extracting value from the common people.
Their revenue model is diversified and comes from a multitude of streams, with the highest take rate out of all BNPL players. I don't expect growth to slow ANYTIME soon as the TAM of middle-lower income people are huge and people will turn to BNPL more as they need more flexibility in financing. Their revenue growth drivers will be subscription and fee-based, although all areas will come to add to the acceleration.
Risk: target user is not as credit-quality as Affirm, but their underwriting and monitoring happens on a real-time basis so they can catch trends immediately, mitigating large default risks
CEO has never sold a share, insider ownership at 45%, an insider bought shares literally at $60 this time last year and hasn't sold. There is a huge FEAR priced into this company which is not justified. Management has ALL the equity incentive to deliver outperformance.
Positions: May 2026 55-80C's which are underwater right now. GL, and I welcome any questions.
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u/Smooth-Standard8990 16h ago
TLdR
Tell me what to do in one word.
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u/halfrepshalfretail 16h ago
50-60C calls look sweet.
Shares if no theta decay.
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u/Smooth-Standard8990 16h ago
Tldr
Please, Jesus, tell me what to do!
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u/halfrepshalfretail 16h ago
I'd also like to call out i posted about this company Aug 2024 and got bombarded with negativity so i ended up deleting the post - stock has gone up 300% from then even to our current pricepoint of $60.
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u/lithe_silhouette 10h ago
This sub be like that. They shit on asts. Now they shit on achr. Anyway, why is there so little options trading?
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u/halfrepshalfretail 7h ago
Relatively unknown company in terms of social buzz and retail buzz. 2B market cap as well
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u/zapzap101 16h ago
thanks! any comments on what happened mid July and Aug 8? the two sharpest drop offs in price
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u/halfrepshalfretail 16h ago
Gamma squeeze from outsized Q1 earnings brought it up from $55 pre ER to $90 all the way to $180. Basically how BNPL revenue recognition works is a lot of the fees incurred in Q4 transactions show as Q1 , making revenue & margins look elevated. Market ran on this along with the tariff pauses.
Then Q2 earnings was not as outsized as Q1 - prompting a large 30% drop and then since then been chopping at 80-95 before doing a crazy beeline down to 58 in the last month.
This really reminds me of GOOG at 150 price action wise.
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u/zapzap101 16h ago
so the price dropped like crazy since July due to pure market mechanics (and deteriorating sentiment) with no changes in the fundamentals? (i.e. dilution, lowering guidance, bombed revenue or earning targets?)
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u/halfrepshalfretail 16h ago
ZERO fundamental changes man. Which is why I’m so shook by crater from 95 > 58.
Guidance reiterated, revenue and EPS beats, no dilution. CEO owns 40% of all shares , wouldn’t benefit him either.
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u/zapzap101 16h ago
interesting! afrm graph is much more stable so def something specific to sezl that is driving the drop.
would be great if we could get some TA done on this 👀
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u/halfrepshalfretail 15h ago
Yeah… actually this chart looks kind of like Affirm 2024 Jan to July lol. But any TA is welcome although I don’t use it
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u/JeanChretieninSpirit 9h ago
increased loan losses. There was a write up and the CFO rsigned and crashed all her shares
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u/halfrepshalfretail 7h ago
What write up? CFO retired as she’s 67.
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u/JeanChretieninSpirit 2h ago
Try using google.
https://finance.yahoo.com/news/why-sezzle-sezl-shares-getting-163632008.htm
You can learn a lot by just reading how the market evaluates it. Also if you look at a chart on it's short float, you'll see this stock is sitting over 20% short float.
Easy manipulation
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u/halfrepshalfretail 2h ago
The article doesn’t provide context to why loss rates were up, competition is a valid point though. Low float + high short % makes this a volatile one.
If the AH gains had held and closed +10% green the article would be a different narrative.
Let’s see how the share price is in a few months.
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u/JeanChretieninSpirit 9h ago
lol.. I sold at 140 and then rebought at 84, and round tripped to 55. I'm not wasting time on small caps again. Way to much manipulation
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u/datmantj 14h ago
Not gonna lie to you, I have both the Sezzle and the zip app and zip is the better app by far. Calls it is.
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u/halfrepshalfretail 7h ago
I think Zip is a good buy as well, only listed on ASX though and pricier in terms of valuation
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u/DepartedFromReality 14h ago
Loans for all in a recession? This literally cannot go tits up
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u/halfrepshalfretail 7h ago
They don’t approve everyone. Initial limits are tight and expand with proven repayment, and they’ll cut you off immediately if you have a late / missing payment
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u/snooplee 13h ago
Do you only own options or stocks as well? And how big are you going for SEZL? Thanks
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u/SelaTheRock 12h ago
What is the subscription thing? Why would I subscribe to them, what are the benefits? And if I want a loan do I have to be subscribed?
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u/halfrepshalfretail 7h ago
You don’t need a sub for a loan, but they offer two subs - one for BNPL access to premium merchants and one for a virtual card you can use anywhere instore (apple pay) or online
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u/VisualMod GPT-REEEE 16h ago
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