Sezzle, Inc. Surges Despite Recession Fears
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Our 2nd largest holding, Sezzle ($SEZL:NASDAQ), continues to perform above expectations and I expect this trend to continue. I wrote in my initial post, (here) Sezzle had numerous avenues for future growth and this is turning out to be true as they begin to approach new highs in revenue with their more profitable merchants and new revenue streams. Through that initial post I was able to highlight that this was a great value investment with plenty of catalysts. That has turned out to prove true as the company continues to fire on all cylinders.
As before, Free Cash Flow (FCF) has been slightly rough due to high interest rates affecting short term working capital, but I believe interest rates have neared their top and we will begin seeing rates remain steady or even begin to fall over the coming years (the Fed has come out and said that inflation is taking a back seat to any job losses). The correction in working capital will add to the new subscription model that Sezzle is beginning to build out. According to recent reports, although Black Friday was down compared to last year, it posted a 7.8% increase in online sales and a 30% in Buy Now Pay Later sales. This is huge and I think it will allow for a blowout 4th quarter for Sezzle.
Since converting to the NASDAQ, Sezzle has had some complications with extremely low float on the exchange leading to heightened volatility and extremely low valuations. Although, normally I wouldn’t be so allocated to a cyclical business like Sezzle with the very real recessional risks on the horizon, they were so undervalued at one point ($45m) it created a great buying opportunity that I couldn’t pass it up. Returns have already been well received from Sezzle and I think they have a lot more upside potential especially as management addresses the low float issue by delisting from the Australian Stock Exchange in the coming weeks/months. We were also able to capitalize on a small arbitrage opportunity between the ASX and NASDAQ exchanges (less than 10% arb) but it was free money on the table and we took it when ASX shares became undervalued compared to NASDAQ shares.
Sezzle ($SEZL.NASDAQ) Stock Chart via TradingView
As float has increased due to upcoming ASX delisting, it is beginning to achieve serious gains in price as liquidity continues to build up along with Free Cash Flow (FCF) momentum, revenue momentum, and a great balance sheet. These are all things I highlighted in my initial write up on Sezzle that would most likely lead to strong short term performance on top of the long term thesis.
Even though they are in a cyclical industry with recession risks increasing, the industry is undergoing massive growth (BNPL industry is rapidly growing, at roughly 29% CAGR). I believe this management (which is a late arrival to the industry) will continue increase market share in a profitable and appropriate manner. Insiders continue to buy hand over fist, which only increases my confidence. We are long Sezzle from here and appreciate the current gains from great management.
Disclaimer: The author of this idea has a position in securities discussed at the time of posting and may trade in and out of this position without informing the reader.
Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC and CSA filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice. The author and funds the author advises may buy or sell shares without any further notice.
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