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Highlights
- Sezzle faces challenges following a critical short report by Hindenburg Research.
- Hindenburg raises concerns over credit losses and insider actions.
- Sezzle's merchant base and credit provisions draw scrutiny.
Sezzle (NASDAQ:SZL), a buy now, pay later company, is under scrutiny following a short report by Hindenburg Research. The report questions the sustainability of Sezzle’s operations, highlighting mounting credit losses and alleged insider activity.
Hindenburg's report suggests Sezzle may struggle to sustain its business model, citing credit loss provisions growing significantly year-on-year. While the company's lending only rose marginally, its provisions for potential losses climbed substantially, reflecting concerns about its credit practices. According to the report, Sezzle's platform has seen a sharp decline in active merchants since 2021, dropping from over 50,000 to approximately 23,000. However, Hindenburg claims this figure could be even lower, identifying fewer merchants on the company’s website.
Sezzle, headquartered in Minneapolis, debuted on the Nasdaq in August 2023 after previously delisting from the Australian Securities Exchange (ASX) in January 2024. The stock experienced significant growth earlier this year, with shares rising over 2,000% amid a broader recovery in the buy now, pay later sector. However, following the release of Hindenburg’s report, Sezzle’s stock fell by 23%, closing at US$242.17.
The company currently has US$95 million in outstanding credit, incurring a high-interest rate of 12.65%. Hindenburg highlighted this as a point of financial stress, alongside the platform's declining merchant base.
Adding to concerns, Sezzle’s chair and chief executive reportedly used a margin loan against company shares valued at $542 million. This action, according to Hindenburg, enabled the extraction of cash from shares without the need to disclose the sale to the market.
In its report, Hindenburg emphasized challenges facing Sezzle, including competition from larger platforms and the strain of risky credit practices. It stated that Sezzle’s model appears unsustainable and noted that insider activities could indicate doubts within the leadership about the company’s future.
This report comes amid a year of remarkable gains for Sezzle, but questions now loom over the company’s ability to maintain stability and grow its merchant ecosystem. Despite these challenges, Sezzle has not yet issued a formal response to the allegations raised.
As the buy now, pay later industry evolves, the implications of this report could have significant ramifications for Sezzle’s trajectory.
