Hindenburg Research has announced a short position in Sezzle Inc. (NYSE: SEZL), a company based in Minneapolis that specializes in ‘Buy Now, Pay Later’ (BNPL) services. This development comes as Sezzle’s stock has seen a dramatic increase of over 2,000% in the past year. Despite this growth, the company faces significant challenges that have prompted Hindenburg’s move. These issues include reliance on costly capital for lending, a rapid decline in customer and merchant retention, and insider trading activities.
Hindenburg Highlights Concerns Over Sezzle’s Financial Practices and Leadership
Sezzle’s financial practices have raised eyebrows, particularly its borrowing of high-interest capital to fund risky loans. The company’s provisions for credit losses have surged by 130%, even as its loan book expanded by a mere 6%.
This discrepancy highlights potential financial instability. Moreover, insiders have been offloading stocks aggressively, with approximately $71 million sold this year. The CEO’s decision to pledge $542 million in shares as collateral for a margin loan further underscores the financial strain. Adding to the concerns is the lack of corporate experience of Sezzle’s COO and “Head of Risk,” which raises questions about the company’s leadership and risk management capabilities.
Sezzle is grappling with a shrinking merchant and customer base, which could undermine its business model. The company has witnessed a 51% reduction in active merchants since 2021, with significant partnerships, such as those with Target and Lamps Plus, failing to sustain.
The active customer count has also dropped by 20% over the same period. Although there has been a reported 2.5x growth in subscription products, the legitimacy of these figures is in doubt due to questionable enrollment practices. Furthermore, Sezzle’s reputation is tarnished by a low average rating and numerous complaints on the Better Business Bureau database.
Impact on SEZL Stock Performance
The impact of these challenges is reflected in Sezzle’s stock performance. Despite a valuation premium, the company’s reliance on expensive capital and insider trading activities has spurred investors’ concern.
The stock opened at $324.99 but dropped significantly, trading at $228.01, down over 27% at the time of writing. This downward trend is consistent with recent trading days, suggesting waning investor confidence. Hindenburg’s short position will likely exacerbate these sentiments, potentially affecting the stock’s long-term sustainability.
Sezzle’s current market metrics reveal a complex financial picture. The company boasts a market cap of over $1.3 billion, with a trailing P/E ratio of 26.21 and a forward P/E ratio of 19.99. However, its debt-to-equity ratio is 155.18, indicating significant leverage.
Analysts have set a target high price of $353.00 and a target low price of $300.00, with a mean and median price of $326.50. Despite these figures, the recent price movement suggests a challenging road ahead for Sezzle, as it navigates financial pressures and attempts to stabilize its declining market position.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
