Sezzle reports better income as it cuts costs, merchants

The buy now, pay later operator has seen a surge in its stock price after a difficult year. It says it is still working on slashing expenses.

BNPL stocks have flipped from market darlings to pariahs this year. Picture: Pavlo Gonchar/Getty Images

Sezzle shares defied an early rally to end 20 per cent lower after the buy now, pay later player reported a 6.8 per cent increasein total income in the three months to June 30 in part due to renegotiated fees with merchants and the removal of unprofitableones.

But underlying merchant sales increased by only 1.9 per cent for the three months ended June 30 due to a decline in retailspending in the US, the company said.

“In the last few months we have launched $US400m ($570m) worth of revenue and cost savings initiatives, as we move towardsprofitability and positive free cash flow generation and we believe the results of those actions are starting to show,” saidSezzle chairman Charlie Youakim.

“We expect to see the full benefit of these initiatives on a run rate basis by year end, and coupled with additional actionswe are taking, we anticipate achieving positive monthly net operating income … by year end,” he added.

Sezzle shares initially surged 13 per cent on Friday before ending the day 19.6 per cent, or 20c, lower. They have risen some183 per cent in the last five days, and were briefly forced into a trading halt earlier this week after jumping 96 per centin one day alone.

The company told the ASX, following a pricing query, that it was not aware of any information concerning the recent tradingof its securities.

Earlier this month, Zip Co abandoned a $491m takeover of Sezzle and will pay its suitor $11m to cover transaction costs.

Shares in Zip, Laybuy, and Openpay have all risen this week on the back of Australia’s latest inflation data, which revealeda high, but not as high as expected annual rate of 6.1 per cent. This is Australia’s highest annual inflation rate since 2001.Sezzle pointed out at the time of its stock price query that the BNPL sector had been in decline until this week.

The company has been taking steps to reduce its unprofitability, and announced a paring back of costs by cutting 20 per centof its staff and by reducing its international footprint. In the second quarter, its active consumers rose 18.2 per cent fromthe previous corresponding period to reach 3.4m and repeat usage from customers rose for the 42nd consecutive month to 93.5per cent.

Uncollectable accounts receivable fell during the quarter to 1.9 per cent of underlying merchant sales and transaction expensesas a percentage of underlying merchant sales also improved 20 basis points to 2.4 per cent.