Sezzle on course to generate over $1 billion in annual merchant sales

Payment platform developer Sezzle (ASX: SZL) has published keenly awaited operating metrics for the last three months, dominated by “global economic headwinds” caused by the COVID-19 pandemic.

In a statement to the market, Sezzle declared it has continued to reflect a trajectory of solid growth across all key operating metrics, recording over US$188 million (A$272 million) in underlying merchant sales in the process, up 58% over the previous quarter and a whopping 349% increase year-on-year.

The achievement represented the best three months of merchant sales growth in the fintech company’s history.

Average monthly sales rose from US$40 million this time last year to over US$62 million while Sezzle’s active consumer numbers increased by 28% to almost 1.5 million. In parallel, active merchant numbers swelled by 27% to 16,112 – a 219% increase compared to last year.

Importantly, Sezzle said it had encountered an “improving consumer profile” including increased repeat usage and purchasing frequency, a clear sign the COVID-19 pandemic has not only failed to thwart Sezzle’s growth, but helped to amplify it.

“Our strong performance in Q2 is reflective of an improving consumer profile combined with [an] accelerated adoption of eCommerce due to the pandemic,” Sezzle chief executive officer Charlie Youakim said.

“Our performance reaffirms our product’s utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to e-commerce.”

“The undercurrent of organic growth that we are experiencing is exciting to see as our business matures. The gains in repeat customer usage and frequency of purchases by cohorts are key drivers to lower loss rates and greater net transaction margin,” he added.

US operations

Sezzle’s payment platform allows around 1.5 million of its users to utilise short-term interest-free instalment plans at online stores and select in-store locations.

The company’s payment option encourages consumer spending and has been widely popular since widespread toughening of economic conditions set in worldwide in March.

Sezzle’s platform matches consumers with lenders, meaning that when they apply, approval for a loan is done instantly with associated credit scores left unaffected – unless the consumer elects to opt-in to a credit building feature called Sezzle Up.

Concerning its US operations, Sezzle reported local consumers and retailers were actively turning to e-commerce during the pandemic. With nearly the entirety of Sezzle’s transactions coming through e-commerce channels, the company said it is “well-positioned” for the accelerated shift towards online services.

Repeat usage improved to 87.5% in June this year, compared to 77.2% in June 2019 – recording the 18th straight month of sequential improvement.

Following its performance over the past year, Sezzle said it anticipates achieving an annualised run rate for ultimate merchant sales of “more than US$ 1 billion (A$1.4 billion) per year” by the end of 2020.

To bolster its bottom line, Sezzle earns various fees from merchants, in exchange for using its platform. Merchant fees are a key aspect of Sezzle’s total earnings, calculated as merchant fees and rescheduled payment fees, less loan origination costs on approved consumer funding.

Merchant fees rose almost 400% to US$10.6 million on a year-on-year basis — as a percentage of ultimate merchant sales, merchant fees improved 55 basis points to 5.6%.

Following Sezzle’s strong performance metrics published today, all attention among market analysts now shifts to the company’s next anticipated publication of its performance figures, as part of its quarterly filing on 27 July 2020.

Analysts are keen to determine whether the sharp increase in e-commerce demand over the past six months will persist and whether the brutal economic impact of COVID-19 will have a lasting effect on consumer spending and aggregate demand.