BNPL Lender Sezzle Plunges as Short-Seller Hindenburg Research Takes Aim

The Buy Now, Pay Later (BNPL) industry has been a hot topic in recent years, with companies like Sezzle Inc. (NASDAQ: SEZL) gaining significant traction. However, the sector has recently faced scrutiny from short-seller Hindenburg Research, which has taken aim at Sezzle's business model and financial practices. This article explores the implications of Hindenburg's report on Sezzle's stock price and the broader BNPL industry.

Sezzle, a Minneapolis-based BNPL provider, has been on a rollercoaster ride since its inception. The company allows consumers to purchase goods and services in installments, with merchants bearing the risk of non-payment. Sezzle's stock price has been volatile, with a significant decline following Hindenburg's report in late November.

Hindenburg Research, known for its controversial short-selling strategies, alleges that Sezzle engages in high-risk lending practices, borrowing expensive capital at a 12.65% interest rate to lend to high-risk consumers. The report also highlights insider selling and a struggling platform that is losing customers and merchants. Sezzle's Chairman and CEO have pledged $542 million in shares as collateral for a margin loan, while insiders have sold approximately $71 million in stock this year.

Sezzle's history of high-risk lending and questionable practices in Australia has further eroded investor confidence. In 2019, the company faced accusations of being highly promotional and withholding negative information from shareholders. The stock later collapsed following reports of significant bad debts and speculation of bankruptcy. Despite reporting profitability in February 2023, Sezzle's earnings growth in 2024 appears unsustainable, with filings showing the company borrows at a high interest rate to lend to extremely high-risk consumers.

Sezzle's competitors in the BNPL space, such as Affirm and Afterpay, have not yet reacted publicly to Hindenburg Research's report. However, the report highlights the risks associated with high-risk lending and expensive capital borrowing, which could impact the entire BNPL industry. Competitors may need to reassess their lending practices and borrowing costs to maintain investor confidence and avoid similar scrutiny.

The BNPL industry is still in its early stages, and companies like Sezzle have the potential to revolutionize consumer credit. However, the high-risk nature of the business model and the potential for regulatory scrutiny pose significant challenges. Investors should carefully evaluate the risks and opportunities associated with BNPL providers and consider the long-term sustainability of their business models.

In conclusion, Sezzle's stock price plunge following Hindenburg Research's report serves as a reminder of the risks and challenges facing the BNPL industry. As the sector continues to grow, investors and companies alike must remain vigilant and adapt to the evolving landscape. While Sezzle's future remains uncertain, the broader BNPL industry is poised for significant growth, provided companies can navigate the challenges and maintain the trust of investors and consumers.