The Sezzle Inc (ASX: SZL) share price is down 12% after reporting its FY20 result which displayed huge levels of growth.
What did Sezzle report in the FY20 result
The US-based buy now, pay later business announced that its 2020 underlying merchant sales (UMS) grew 250.8% to US$856.4 million and total income went up 272.1% year on year to US$58.8 million. Each quarter represented a new record in performance.
Total income as a percentage of UMS improved by 39 basis points (0.39%) to 6.9%. Merchant fees as a percentage of total income declined 114 basis points (1.14%) to 80.9%.
The net transaction margin improved 120 basis points (1.20%) to 1.4% of UMS, or US$12.4 million – up from US$0.6 million in 2019. There was a 50 basis point (0.50%) improvement in the cost of income (mostly due to lower processing costs), about a 30 basis point (0.30%) decline in net transaction losses, and an increase in Sezzle income as a percentage of UMS (30 basis points – 0.30%). The enhancements of the margin are attributed to the company’s improving consumer profile, which experienced favourable trends in repeat usage, frequency of purchases, and overall payment performance.
Active consumers went up by 143.9% year on year to 2.2 million and active merchants went up by 166.6% to 26,700 at 31 December 2020. That growth has continued in January 2021, with active consumers rising 5.7% month on month to 2.4 million and and active merchants rising 9.5% to 29,200 month on month.
Outlook
Sezzle said that 2021 has started strongly with UMS of US$117.8 million in January, an increase of 65.1% above the average monthly performance in 2020 and the company’s best monthly performance on record.
The company has provided UMS guidance for Sezzle to achieve an annualised run rate of UMS of US$2.5 billion by the end of 2021.
Sezzle recently announced a new US$250 million receivables funding facility with Goldman Sachs Bank USA and Bastion Funding to support the expansion of the business in the US and Canada. The 28-month facility expands the company’s funding capacity, while lowering the cost of borrowing and extending the maturity well into 2023.
The entire buy now, pay later sector is being sold off right now, so it’s not too surprising that Sezzle shares are down. It’s a solid option in the sector, but I don’t know what an attractive price would be to buy it at. How much profit can the business generate in the future? It’s a very hard question to answer.
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