Sezzle Stock Plunges 11%: Hindenburg's Short Report Raises Concerns

Sezzle Inc. (NASDAQ: SEZL), a leading 'Buy Now, Pay Later' (BNPL) company, has seen its stock price plummet by 11% following a short report by Hindenburg Research. The report raises serious concerns about Sezzle's risky lending practices, rapid customer and merchant loss, and questionable business model. This article delves into the key factors driving Sezzle's stock price and the implications of Hindenburg's report on its future prospects.

Sezzle's stock price has been volatile, with a recent 11% drop following a short report by Hindenburg Research. Key factors driving Sezzle's stock include its 'Buy Now, Pay Later' (BNPL) business model, revenue growth, and market position. However, concerns about its high-risk lending practices, rapid customer and merchant loss, and insider selling have raised red flags. Sezzle's forward sales multiple of 5.5x, a 63% premium to peers, reflects investors' confidence in its growth potential. However, its high-interest borrowing costs (12.65%) and rapid loan growth (6% YoY) suggest a risky strategy. Sezzle's stock performance contrasts with its peers, such as Affirm and Afterpay, which have shown more stable growth and lower risk profiles.

Sezzle's revenue growth and earnings performance have been impressive, with a 71% year-over-year increase in revenue and a 787% increase in EPS. However, its forward P/E ratio of 21.89 is higher than the industry average, indicating that investors may be overestimating its growth potential. Additionally, Sezzle's earnings growth appears to be driven by issuing lower-quality loans, which could lead to higher credit losses in the future.



Hindenburg's report highlights several concerns about Sezzle's business model and financial stability. The company's high-interest lending strategy targets high-risk consumers, driving rapid loan growth and provisions for credit losses up 130% in 2024. This approach may compromise financial stability, as U.S. consumers face rising credit card delinquency rates. Additionally, the strategy has led to a 20% decline in active customers since 2021, despite a 51% drop in active merchants. Sezzle's COO and Head of Risk, with no apparent corporate experience, may exacerbate these risks.

The implications of Sezzle's rapid customer and merchant loss on its long-term growth prospects are significant. The 51% decline in active merchants since 2021 and a 20% drop in active customers indicate a significant erosion of Sezzle's user base. This trend, coupled with the failure of key merchant partnerships, suggests a struggling platform that may struggle to attract and retain customers. The company's reliance on risky lending and expensive capital, along with insider selling and a massive margin loan, further exacerbate these concerns. Sezzle's ability to reverse these trends and achieve sustainable growth remains uncertain, making it a risky investment.

In conclusion, Sezzle's stock price has been driven by its BNPL business model, revenue growth, and market position. However, concerns about its high-risk lending practices, rapid customer and merchant loss, and questionable business model have raised red flags. Hindenburg's short report highlights several financial and operational risks that could impact Sezzle's long-term growth prospects. Investors should carefully consider these factors before making investment decisions in Sezzle stock.