Buy now, pay later Sezzle founder Charlie Youakim loses most of $800m fortune

The founder is part of the buy now, pay later sector, which has taken a battering on the share market with one expert describing the situation as “horrific”.

The founder of a buy now, pay later provider called Sezzle has lost most of his $800 million fortune after the company’s shares bombed, continuing a nightmare run for the sector.

Last June, American founder Charlie Youakim was riding a boom in Sezzle’s shares which were worth $9.20, but they crashed by 96 per cent this week, plunging to just 40c.

This saw all but $35.4 million wiped from Mr Youakim’s fortune after he boasted last year that Sezzle was on a “tremendous growth trajectory”. The company had raised $79.1 million capital back in 2020.

Sezzle is due to merge with Australian buy now, pay later (BNPL) player Zip Co with the deal expected to be sealed by the third quarter of this year, but Zip has also taken a beating on the stock market.

Founder and CEO of buy now, pay later company Sezzle, Charlie Youakim has lost most of his fortune.

Zip’s shares dived in the past 12 months and are currently trading at 63c, compared to $14.53 back in May last year.

The BNPL provider previously had a market capitalisation of about $6 billion – which was more than retailer JB Hi-Fi – but this has since plummeted to around $600 million, a staggering 87 per cent decline in the share price compared to 2021.

The future of Sezzle hinges on the Zip acquisition, according to Andrew Brown, the founder of hedge fund East 72.

“I don’t see how (Sezzle is) going to raise any capital, other than on the most distressed terms,” Mr Brown told the Australian Financial Review if the deal wasn’t closed.

“The fundamental problem with both companies is the bad debt situation is just horrific. It’s got materially worse since stimulus payments in both the US and Australia stopped. You can see that fairly clearly in the quarterly and half-year figures.”

Zip is due to acquire Sezzle in the third quarter of this year. Picture: Gaye Gerard/NCA NewsWire

Experts have previously predicted potential “carnage” for the buy now, pay later sector as providers burn through cash, bad debts balloon and customers retreat from using the service – a model which they say isn’t sustainable.

More pain is also headed Australian BNPL providers’ way with Financial Services Minister Stephen Jones indicating on Thursday that the sector would be regulated similarly to credit products by mid-2022, a change consumer advocate groups have been campaigning on.

Zip had valued Sezzle at $491 million when it announced the acquisition back in February, based on a 22 per cent premium on its then share price of $1.78.

In April, Zip said its March quarter revenue increased 39 per cent to $159.2 million on transaction volumes that were up 27 per cent to $2.1 billion, while Sezzle said its revenue climbed 6.1 per cent to $38.8 million.

Zip has claimed the combined companies could generate positive cash flow by 2024.

Mr Brown added that Zip’s marketing costs are running at $150 million annually out of a $500 million cost base.

“If you pare the marketing back a bit I still believe Zip needs underlying sales, assuming bad debts fall about half, of about $15 billion to $16 billion to break even,” he said.

“They’re at about nine and a bit now, maybe slightly more, and that’s assuming a fairly decent improvement in bad debt metrics and also chopping down marketing.”

If the BNPL provider’s merger deal was to fall through, Sezzle may owe Zip a termination fee of $7.8 million. On the flip side, Zip could owe Sezzle a termination fee of $31.4 million.

Overall, the Australian BNPL sector lost a whopping $1.05 billion in 2021, which has left investors concerned and has seen share prices dive this year.

Afterpay recorded a net loss of $345.5 million over the six months of last year. Picture: Gaye Gerard/NCA NewsWire

Afterpay posted a staggering mid-year loss just months after being acquired for $39 billion.

The Aussie company’s first results since being taken over by US company Block showed it

recorded a net loss of $345.5 million over the six months to December 31, 2021.

That’s a considerable decline from its previous half-yearly results, where it shed $79.2 million in the first half of 2021. In all, that means the company’s losses ballooned by 336 per cent.

Last month, Afterpay announced it’s moving into even more services such as restaurants, butchers and hairdressers as it targets “bricks and mortar” retailers, but consumer advocates have warned its latest offering is “dangerous”.