Sezzle Inc. (NASDAQ: SEZL) has emerged as a standout performer in the fintech sector, particularly within the Buy Now, Pay Later (BNPL) industry. With its impressive Q1 2025 earnings, the company has demonstrated significant growth and value, making it an attractive option for investors seeking exposure to innovative financial services.
About Sezzle
Founded in 2016 and headquartered
in Minneapolis, Minnesota, Sezzle is a publicly traded financial technology
company operating primarily in the United States and Canada. The company offers
a digital payments platform that provides interest-free installment plans,
allowing consumers to split their purchases into multiple payments over time. Sezzle
had over 2.7 million active consumers and more than 23,000 participating
merchants, including major retailers like Amazon, Walmart, and Target.
Sezzle Financial Performance
Sezzle's Q1 2025 financial
results demonstrated impressive growth across several key metrics. The company
reported revenue of $104.91 million for the quarter, marking a significant
123.32% increase compared to $46.98 million in Q1 2024. Earnings per share
(EPS) also surged, reaching $1.00, an increase of 354.55% from $0.22 in the
same quarter last year.
On a trailing twelve months (TTM)
basis, Sezzle’s revenue stood at $329.06 million, reflecting a 91.69% rise from
$171.66 million in Q1 2024, while EPS soared to $2.97, representing a
remarkable 677.39% increase from $0.38. The company’s free cash flow per share
over the TTM period also grew substantially to $1.70, up 246.94% from $0.49 in
Q1 2024.
Profitability metrics remained
robust, with a gross profit margin of 66.36%, a net profit margin of 32.42%,
and a free cash flow margin of 18.55%. Additionally, Sezzle reported a strong
return on assets (ROA) of 45.83% and an outstanding return on equity (ROE) of
137.32%, supported by a conservative debt-to-equity ratio of 0.56.
Over the past 5 years, the
company has been growing its revenue at a 50% CAGR, while net income and free
cash flow have been growing rapidly over the past year and continuing to do so.
Sezzle 2025 Financial Forecast
Looking ahead, analysts forecast
continued momentum, projecting 2025 revenue of $438.41 million an increase of
61.7% over 2024’s $271.13 million and a non-GAAP EPS of $3.24, representing a
75.77% rise from the previous year’s $1.84. The average of analysts have set a
price target of $90.50, with a "Buy" rating, suggesting a potential
downside of 8.69% from the current price. Sezzle stock has already gained high
this year, and I think analysts are still cautious about increasing the price
target.
SEZL Stock Price Performance
and Valuation
At the time this article was
written, Sezzle stock was trading at $99.11. Over the past year, Sezzle stock
has gained an impressive 675.61%, significantly outperforming the S&P 500,
which rose by only 9.7% during the same period. Since its listing date in August 2023,
Sezzle’s stock has surged by 633.4%, compared to a 33.5% gain for the S&P
500. When examining valuation metrics, the stock appears reasonably priced
relative to its strong growth prospects. Its price-to-sales ratio (TTM) stands
at 10.15, while the forward price-to-sales ratio is 7.53. The non-GAAP
price-to-earnings (P/E) ratio for the trailing twelve months is 38.42, with a
forward non-GAAP P/E of 30.6. Additionally, the price-to-free cash flow ratio
(TTM) is 54.06.
Looking at the valuation since
2024, Sezzle stock is currently trading above the average forward P/S of 2.95,
and its forward P/E is also above the average of 14.86. However, this company
is truly a fast-growing business, and the current valuation though higher than
the historical average, this is justified, as Sezzle has been able to grow its
revenue rapidly. In the most recent quarter, it reported more than 120% growth,
which is very rare for a company. The current valuation is also still more
reasonable than that of many tech companies, which often have high P/E ratios
without growing as fast as Sezzle. So, the current valuation is actually still
not very high.
Sezzle Growth Potential
Sezzle's growth prospects remain
strong, driven by several factors:
- Margin Expansion and
Operational Efficiency
A critical driver of Sezzle's improved profitability is its enhanced operational efficiency. Total operating expenses grew at a much slower rate than revenue, increasing 66.0% year-over-year to $55.0 million, but declining as a percentage of revenue by 18.2 percentage points to 52.4%. This significant improvement reflects the company's ability to leverage its platform and infrastructure as it grows.
Transaction-related costs have also been optimized, declining from 4.3% of GMV to 3.8% year-over-year. This improvement stems from better-than-expected credit performance, more effective payment processing strategies, and reduced interest costs from improved facility terms. The company reported impressive margin metrics across the board, including a robust gross margin of 70.4% and an adjusted EBITDA margin of 49%. - User Engagement and Growth
Drivers
Sezzle's growth potential is strongly supported by deepening user engagement metrics. Average quarterly purchase frequency increased to a record 6.1 transactions per customer, up from 4.5 in Q1 2024. This 35.6% increase in purchase frequency indicates stronger customer loyalty and higher lifetime value per user, factors that typically correlate with sustainable long-term growth.
As of March 31, 2025, Sezzle reported 658,000 Monthly On-Demand & Subscribers (MODS), representing 77.4% growth year-over-year. While this figure represents a seasonal decline from 707,000 in Q4 2024 following the holiday shopping period, the strong year-over-year growth confirms that Sezzle continues to attract and retain users effectively. - Improved Forward Outlook and Guidance
Perhaps the strongest indicator of Sezzle's growth potential is management's dramatic upward revision of forward guidance. Following the strong Q1 results, Sezzle raised its 2025 net income guidance by nearly 50% to $120 million. The company also upgraded its earnings per share guidance from $2.21 to $3.25 and increased its revenue growth guidance to 60-65% for the full year.
This substantial guidance increase reflects management's confidence in sustaining business momentum throughout 2025. CEO Charlie Youakim specifically noted that "stronger consumer activity and better-than-expected repayment trends" propelled quarterly earnings above expectations, contributing to the improved outlook.
Risks to Consider
While Sezzle presents a
compelling investment opportunity, investor should be aware of potential risks:
- Credit Risk
Sezzle assumes full credit risk for consumer purchases made through its platform, meaning the company absorbs all losses resulting from fraud and non-payment. This exposure places Sezzle at significant financial risk due to potential bad debts and repayment defaults by consumers. Credit losses represent a major portion of the company’s operating expenses, directly impacting profitability.
Recent financial data reveals that provisions for credit losses have increased by 130% year-over-year, indicating a growing risk profile. This rise in credit losses coincides with Sezzle’s efforts to expand its consumer base and relax underwriting standards to attract more customers. While these strategies aim to drive growth and market share, they also increase the likelihood of defaults and financial strain. Managing this credit risk is crucial for Sezzle’s long-term financial stability and success in the competitive Buy Now, Pay Later industry. - Competitive and Market Risks
The Buy Now, Pay Later (BNPL) sector is highly competitive, with established players such as Afterpay, Affirm, and Klarna dominating the market. Sezzle holds a relatively modest market share of approximately 2.7% in the United States, which highlights the challenge it faces in gaining significant traction against larger competitors. This intense competition puts pressure on Sezzle’s profit margins and limits its growth potential, as it must continuously innovate and invest to attract and retain customers.
Additionally, Sezzle’s efforts to expand internationally introduce further risks, including navigating unfamiliar regulatory landscapes and achieving market acceptance in diverse regions. Differences in consumer behavior, legal requirements, and competitive dynamics abroad may slow expansion or increase costs. Successfully managing these competitive and market risks is essential for Sezzle to strengthen its position and achieve sustainable growth. - Regulatory and Compliance
Risks
Sezzle operates within a complex and highly regulated environment, primarily in the United States and Canada, where it must comply with numerous laws related to lending, consumer finance, and data privacy. These regulations are constantly evolving, requiring the company to adapt its policies and procedures to remain compliant. Increased scrutiny from regulatory bodies, such as the Consumer Financial Protection Bureau (CFPB), heightens the risk of enforcement actions, which could result in substantial fines or costly litigation.
Maintaining compliance demands significant operational resources and increases overall costs. Additionally, failure to secure or retain necessary licenses in various jurisdictions could lead to interruptions or restrictions in Sezzle’s ability to conduct business. Therefore, regulatory and compliance risks represent a critical challenge that could adversely affect Sezzle’s operations, reputation, and financial performance if not carefully managed.
Conclusion
Sezzle Inc. has demonstrated exceptional growth and financial strength in Q1 2025, outperforming market expectations and peers. With a solid business model, strong financial performance, and a growing market, the company is poised for continued success. While investors should remain mindful of potential risks, Sezzle's impressive performance and growth trajectory make it a compelling addition to a diversified investment portfolio.
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