Sezzle shrugs off Afterpay comparisons – The Australian Financial Review

Founded in 2016 by serial tech entrepreneur Charlie Youakim, Sezzle pitched its IPO to buy now, pay later-hungry investors in July 2019 at $1.22 apiece to raise $43.7 million.
Mr Youakim’s paper worth is now about $614 million, with the son of a Palestinian immigrant holding 88.4 million shares, or 49.7 per cent of the share register, post-IPO. Co-founder Paul Paradis held 10 million shares worth $69.5 million.
Ord Minnett took the lead on the IPO and is acting as the sole lead manager, bookrunner and underwriter for its $80 million institutional placement, which looked likely to get away at $5.30 according to The Australian Financial Review’s Street Talk column.
Simple business model
While Afterpay has a lot of copycats in the market attempting to leverage off its success including Zip Co, Openpay, Flexigroup and Splitit it is Sezzle that shares the closest business model.
Like Afterpay, it almost only offers loans on a standard six-week basis. This allows it to turn over its receivables book quickly.
The simple business model has advantages over longer-dated buy now, pay later lending as, theoretically, a faster receivables turnover lets a business generate a higher return on capital employed.
Shorter loan books also allow an operator to adjust credit decisions faster according to macro conditions, whereas a group lending for six-month terms (or longer) is exposed to a loan souring any time over that period.
Mr Youakim is on the record saying Sezzle is targeting the Gen Z and Millennial generation of shoppers in the US and now Canada. Sezzle says Gen Z boasts 84 million online-savvy US shoppers, versus 69 million Millennials and 61 million from Gen X.
The US Department of Commerce estimates the US retail market is worth $US5.4 trillion ($7.8 trillion), with e-commerce still only an 11 per cent share. Gen Z is estimated to account for about 25 per cent of that spending power.
Ethical business aspirations
Mr Youakim, who lives with his now-pregnant wife in the Lowry Hill area of West Minneapolis, three kilometres from where the first Black Lives Matter protests erupted after the death of George Floyd, also regularly talks about building a market-leading ethical business for his target demographic.
Sezzle’s website prominently promotes the option to shop at popular black-owned stores such as Akoo, Veer Active, Top Dawg, and Yummy Extensions. Sezzle also plans to help young consumers build their credit scores by using the platform responsibly.
The company’s growth has not been without hiccups as, like Afterpay, its business model has come under the regulatory microscope.
The message is there’s a massive market opportunity and now it’s up to them to find ways to capitalise on it.
Gene Munster, Loup Ventures
The California Department of Business Oversight initially denied Sezzle a lending licence in late 2019 on the basis it had engaged in “illegal unlicensed lending in the state”. The news lopped a third off Sezzle’s share price over the first week of 2020, before it rebounded on news a licence would be approved.
A record-breaking, lockdown-boosted June quarter saw Sezzle add 325,990 new customers and 3397 new merchants. The average fee Sezzle charges merchants also climbed 55 basis points to 5.6 per cent.
Sezzle has never disclosed a timeline to profitability, but its net transaction margin, or NTM, a key measure of profitability, turned to positive 0.3 per cent in 2019 from negative 1 per cent in 2018. NTM has improved in 2020, as it benefits from scale and repeat use from existing customers.
Afterpay operates on an NTM of 2 per cent of gross merchant sales after deducting all fixed transaction costs and bad debt losses from income earned from retailers on total sales.
Sezzle is targeting more than $US1 billion in underlying annualised merchant sales by the end of 2020. If met, this would bring in $US56 million in fees on a pro-forma basis.
Mr Youakim is indifferent to Afterpay comparisons, although he won’t rule out overseas expansion into any number of countries beyond North America.
As US venture capitalist Gene Munster from Loup Ventures said of Sezzle this week: “The message is there’s a massive market opportunity and now it’s up to them to find ways to capitalise on it. That can be challenging.”

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