Will Sezzle’s share price rise as it approaches profitability?

ASX-listed buy-now-pay-later (BNPL) company Sezzle could see its share price rise on efforts by the company to achieve profitability by the end of 2022. Sezzle’s July update indicates that the installment payments company has continued to trim its cash burn in its push toward profitability.

Sezzle shrinks cash burn in July

Sezzle’s July business update indicates that it further reduced its cash burn following sustained efforts to trim expenditures.

According to the update, Sezzle’s operating expenses fell to USD$5.8 million in July, compared to a monthly average of $6.9 million in the second quarter of 2022 and $7.7 million in the first quarter.

By contrast, total income less transaction-related costs was $4 million in July, a leap of 25% compared to the monthly average of $3.2 million for the second quarter.

This means that the company’s cash burn – defined as the total income less transaction-related costs minus operating expenses, fell to $1.8 million in July. Before July, Sezzle’s average monthly cash burn had already fallen for three consecutive quarters.

Sezzle hopes that the narrowing of this gap puts the company on track to achieve profitability before the end of 2022.

‘July’s results demonstrate the progress and success of our initiatives in Sezzle’s evolution to be a profitable and positive free cash flow business by year end,’ said Charlie Youakim, Sezzle’s chairman and CEO.

‘We understand the impact these initiatives have on growth, so teams are moving expeditiously to achieve profitability before refocusing efforts back to growth.’

Profitability could improve on reduced overseas ambitions

In its drive toward profitability, Sezzle said it has launched a range of initiatives that are expected to generate $40 million in annualized revenue and cost savings in 2022.

A reduction in the scope of Sezzle’s overseas ambitions lies at the core of these initiatives. These include the scaling back of operations in Europe and Brazil, a full suspension of payment processing in India, and workforce retrenchments.

Other initiatives include offboarded or renegotiated rates with merchants and network partners, reduced third-party expenditures and the launch of the Sezzle Premium subscription product.

Sezzle Premium gets off to strong start

The BNPL platform said its Sezzle Premium subscription product has enjoyed a strong start and contributed to growth in total income.

According to Sezzle, the subscription product signed up over 64,000 active subscribers through the first 75 days after launch.

Sezzle’s core offering as a BNPL platform is its ‘pay-in-four’ product that lets consumers purchase products using four interest-free installment payments spread out over six weeks.

A key selling point for the platform is that it does not make use of FICO scores to evaluate the credit risk of consumers. It instead uses other information such as bank statements to determine whether customers can make repayments.

This has enabled Sezzle to tap the large demographic of millennial consumers who do not have strong FICO scores.

Sezzle Premium is billed as an ‘elevated version’ of Sezzle that provides exclusive access to more features and brands in exchange for a $9.99 monthly subscription fee or an $89.99 annual subscription fee. Additional features include priority customer support and exclusive deals and discounts.

The strong popularity of the product in the months following launch enabled Sezzle Premium’s Underlying Merchant Sales (UMS) to account for over 10% of total UMS in July. This helped UMS to reach $141.2 million that month, representing a 9.5% increase over June 2022.

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