Sezzle's share price leaps on Q4 profitability

The share price for ASX-listed buy-now-pay-later (BNPL) platform Sezzle has leapt following the release of its December business update highlighting the resumption of profitability in the fourth quarter.

The positive business update arrives following a difficult period for BNPL shares, as well as concerns about the impact of plans by the Australian government to impose tighter regulation upon the sector.

Sezzle reports return to profitability in Q4

According to Sezzle's December business update, strong revenue growth helped the company to achieve its second straight month of profitability, as well as bring the final quarter of 2022 into profitable territory.

In December Sezzle's revenues rose 15.7% compared to the same period in 2021 to hit $19.9 million. This figure also marked an increase of 1.7% compared to the previous month.

Both November and December were profitable months for Sezzle, enabling it to finish the year with a profitable quarter after sustaining heavy losses throughout most of 2022.

Net income in the fourth quarter of 2022 came in at USD$500,000, compared to a net loss of $25.9 million for the same period in 2021.

Sezzle's share price leaps on profitability

The positive results for December drove a 24% surge in Sezzle's share price on the opening of Monday, 23 January. The BNPL company's share price has risen more than 68% since the start of 2023.

Sezzle CEO Charles Youakim touted the success of the company's drive to reach profitability in 2022, as well as the health of its balance sheet.

According to its latest balance sheet data, Sezzle has USD$69.7 million in cash on hand, and USD$65 million drawn on a USD$100 million credit facility.

'In 2022, we set out on a mission to become profitable by year end,' Youakim said.

'We are excited, as we have shown investors that we are clearly on the path to profitability with a well-capitalised balance sheet that does not require additional capital.

'We are now working on additional initiatives to build upon what we have started and achieve positive Net Income and Adjusted EBTDA [sic] for 2023. We look forward to updating investors and the market on our initiatives as part of our fourth quarter conference call in late February.'

Sezzle's strong results in December and the positive outlook of management nonetheless arrive following a difficult period for the BNPL sector, whose key players saw share prices wither in 2022. Despite its recent leap since the start of 2023, Sezzle's share price is still down more than 68% over the past year.

Pressures on BNPL platform could be further compounded in 2023 by calls for tighter regulation of the market.

BNPL could see tighter regulation

Rapid growth in the Australian BNPL market during the Covid pandemic has prompted calls for efforts to rein in what has until now been a very lightly regulated segment of the credit sector. Towards the end of November, Treasury released an options paper outlining three regulatory options for the BNPL sector.

The first option is stronger self-regulation and testing for affordability, while the second recommendation is to partially bring BNPL providers under the remit of the National Consumer Credit Protection Act. This would require that providers obtain Australian credit licenses and step up industry codes.

The third option is to bring the sector completely under the Credit Act, applying to BNPL platforms the same responsible lending requirements that are currently in force for credit card providers.

According to a report from Fairfax, over a dozen consumer groups, charities and community legal centres have voiced their support for the strictest third option, because the first two options would leave too much room for legal loopholes.

Irrespective of which option is eventually selected, it appears likely that BNPL platforms will need to make adjustments to deal with greater a tighter regulatory regime. Their ability to successfully adapt to stricter regulations could have an impact on the performance of their share prices in future.

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