BNPL or Buy Now Pay Later is an emerging industry, with services enabling customers to either postpone the bill or split the cost into equal instalments, free of interest, for their purchased items. Amid the current COVID-19 situation, when the government has imposed travel bans, restricted social gathering and asked people to stay at home, there has been an increase in number of online transactions for purchasing essential items, in addition to cashless transactions.
And, the increase in cashless transactions can be demonstrated with the strong performance of ASX-listed BNPL sector player, Sezzle, in the first quarter of 2020 ended 31 March 2020. Before diving deep into the Company’s quarterly performance and latest market update, let us first have a look at the business.
About Sezzle Inc. (ASX: SZL) – Aiming to Financially Empower the Next Generation
Sezzle Inc. is a technology-enabled payments platform provider in the US and Canada. The Company, which made its ASX debut in July 2019, provides access to a flexible, transparent and seamless payment option. SZL offers interest-free instalment plans at selected brick-and-mortar retailers and online stores.
The Company connects customers with merchants through a proprietary payment solution that immediately extends credit at the point of sale, enabling customers to buy as well as receive the product required at that time while making payment in instalments that too interest free.
Growing E-commerce Shift Favourable for Sezzle
On 27 April 2020, Sezzle Inc. released its Appendix 4C cash flow report for the quarter ended 31 March 2020 along with business update for the same period.
Executive Chairman and CEO of Sezzle, Charlie Youakim stated that since the release of the Company’s Q1 report on 6 April 2020, the underlying trends have remained favourable because of the North American market switch to e-commerce. SZL reported a strong momentum from Q1 FY2020 till date.
As per credit and debit card data accumulated by the data analytics team of Bank of America, daily online retail expenditure from 27 March till 10 April soared more than 40% YoY on average. The total card expenditure has averaged a daily decline nearing ~ 30% YoY.
Owing to the growing number of people switching to online shopping, Sezzle is able to position itself as a major partner for merchants who are looking to provide their customers with more flexible payment options as well as customers looking for a better approach to plan their finances, according to Mr Youakim.
Glance at Sezzle’s Key Operating Metrics in March Quarter
- Underlying Merchant Sales (UMS) for the period noted at US$119.4 million, up by 13.6% QoQ and 321.4% as compared to the previous corresponding period (pcp).
- Merchant fees increased by 17.5% QoQ to US$6.8 million.
- Number of active customers increased by 25.6% QoQ to 1,149,245.
- Active merchant base reached 12,715, up 27% QoQ and 282.9% YoY.
As of 31 March 2020, the Company has cash and cash equivalents of US$38.9 million. It comprises of US$36.6 million in bank balances and US$2.3 million as restricted cash. The increase in cash and cash equivalent was due to an additional US$4.2 million of borrowings on its line of credit.
Cash Inflow/Outflow via Operating Activities
- Cash receipt from customers during the period was US$110.715 million.
- The Company made a total payment of US$8.377 million. The cash outflow was in the form of:
- research and development.
- product manufacturing and operating costs.
- advertising and marketing
- leased assets
- staff cost
- administration and corporate costs
- Major cash outflow was due to payment made to merchants amounting to US$103.4 million.
Cash Inflow/Outflow via Investing Activities - Net cash outflow due to investing activities reported at US$0.115 million.
Cash Inflow/Outflow via Financing Activities - Sezzle generated US$5.650 million from borrowings, while repayment of borrowings valued at US$1.450 million.
COVID-19 Impact on SZL Business
As highlighted above, Sezzle is able to position itself as a major partner for merchants, owing to the switch of North American consumers, as well as retailers, to e-commerce for their daily requirements. The end users are using the Company’s payment product to budget during these unprecedented times.
Sezzle has not experienced any headwinds stemming from COVID-19 on its credit quality or repayments. However, the Company continues to keep a close watch over its leading indicators while taking preventive measures to remain well positioned and address potential increases in loss rates.
US Government Actions and Sezzle
The US government rolled out a coronavirus relief package of US$2 trillion, namely Coronavirus Aid, Relief, and Economic Security (CARES) Act during March 2020 and another relief package worth $484 billion on 24 April 2020. A large portion of the new relief package would be directed towards further improving the Paycheck Protection Program (PPP).
The actions taken by the US government would assist the Company, its merchant partners and the end-users in various ways, including -
- The PPP part of the CARES Act enables SZL and its merchant partners to borrow forgivable loans at favourable, low-interest rates.
- The CARES Act expands unemployment insurance for American workers that lose their jobs. It includes a US$600 per-week increase in benefits for up to 4 months.
- Provisions in the CARES Act enabled additional refundable tax credits for customers, depending on their family income.
The Company is due to hold its annual meeting of stockholders on 1 June 2020.
As highlighted by Mr Youakim, given liquidity, improving net transaction margin and stable credit performance, the Company’s financial position is strong, aiding SZL to withstand prolonged effects from the global pandemic and support its growing business operations. Moreover, the Company has taken deliberate steps to streamline business operations.
Stock Performance: SZL stock advanced further by 3.607% to close the day’s trading at $1.580 on 28th April 2020. The stock has delivered a negative YTD return of 7.85%; however, in the past one month, the return stood at ~ 163%. SZL has a market cap of $273.19 million with ~ 179.14 million outstanding shares.