Sezzle: Why This BNPL Stock Has Multibagger Potential (Ticker: SEZL)

Summary

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Chit Chat Stocks: “Manu Invests On Why Sezzle Stock Has Multibagger Potential (Ticker: SEZL)”

Date: February 4, 2026
Guests: Mark (“Manu” from Manu Invests, Fundamentally Sound)
Hosts: Ryan Henderson & Brett Schafer

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Episode Overview

This episode explores Sezzle (NASDAQ: SEZL), a fast-growing “buy now, pay later” (BNPL) company, through an in-depth discussion with Mark of Manu Invests. Mark, a seasoned finance professional and Substack writer, explains why Sezzle stands out from its competitors, details its unique business model and growth strategies, and shares his bullish outlook for the stock’s “multi-bagger” potential. The conversation covers Sezzle’s origins, competitive landscape, financials, risks, and the broader future of BNPL.

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Key Discussion Points & Insights

1. Mark’s Introduction & Investing Mindset [01:57]

• Mark splits his portfolio: “I really try to anchor it in big quality compounders, but I always try and put like 10% of my holdings into potential multi-baggers that I think are like asymmetrical opportunities.” [02:07]
• Sezzle first surfaced in his own high-growth “multi-bagger” screens.

2. Sezzle’s Business Model Explained [03:10]

• Compared to credit cards, Sezzle offers “pay in four” or “pay in five” solutions: a consumer pays an initial down payment, then equal installments over several weeks—with zero interest if paid on time.
• Sezzle serves near-prime and subprime consumers—a demographic often shunned or gouged by traditional financial institutions.
• Differentiation: Sezzle “is really like a financial well-being app ... giving credit-conscious consumers and consumers with higher financial literacy the ability to budget and almost reverse budget.” [03:41]

3. BNPL vs. Credit Cards & Rival BNPL Providers [04:54]

• BNPL’s appeal: no revolving interest or debt traps.
• “If you don't make your payments, you just don't have access to any more credit essentially.” [05:50]
• Sezzle’s unique pivot: shifted from a “merchant sided” model (a la Affirm/Klarna) to “consumer sided.” Subscribers pay a fee to use Sezzle anywhere Visa is accepted.
  • “They issue you a digital Visa card that is tied to your Sezzle account...” [16:54]

4. Company History & Management’s Turnaround [09:26]

• Founded by current CEO Charlie Yim, a significant owner (~45% of the company).
• Early days struggled: tried merchant integration, listed in Australia, considered acquisition—nearly ran out of cash post-2022.
• Pivotal moment: Ruthless cost cuts, staff reduction, and a focus on profitable growth.
  • “They ruthlessly did that... profitability kind of took off. They launched Sezzle Anywhere. Their business model completely changed...” [09:26]

5. Profitability & Business Strategy [13:00]

• CEO Charlie Yim is lauded for focus and discipline—famously closes earnings calls with Buffett/Munger quotes.
• “We are going to conservatively grow at a pace that maximizes profitability.” [13:51]
• Unlike peers, isn’t chasing unprofitable “grow now, monetize later” playbooks.

6. Merchant Relationships vs. Consumer Focus [14:55]

• Sezzle is more selective about merchant partnerships, pushing for quality over quantity, given its lower but more engaged user base.

7. Industry Growth & BNPL Perceptions [19:14]

• Explosive BNPL sector growth: from $3B originations in 2019 to $45B in 2023; forecasts of up to $900B by 2030. [19:14]
• “The fastest growing segment of BNPL is young people.” [21:20]
• Mark challenges stigma, arguing BNPL is as ethical if not more so than credit cards: “A credit card is the strictest definition of buy now, pay later.” [21:40]
• Candidly shares personal experience of falling into a credit card debt cycle as a young adult, highlighting BNPL’s virtues:
  • “As like a dad today... I’m much more comfortable being like, hey, if you want to build your credit, here’s Sezzle...” [23:59]

8. Financials & User Economics [27:03]

• Revenue growth: c. 70%; gross margins: 60+%; net income margin: 28-29%; free cash flow positive; low stock-based compensation (~2% of revenue).
• “Their primary driver of growth...is focusing on transitioning...customers to what they call mods, which is monthly and on-demand subscribers.” [30:29]

9. Products & The Ecosystem [36:50]

• Sezzle app is “cooler than I expected...It’s become like a shopping app," aggregating deals, rewards, cash back, and personalized offers. [36:50]

10. Growth Outlook & 2030 Vision [32:18]

• “As young people become more financially savvy...they start to turn to like 0% BNPL more than they do credit cards.” [33:09]
• Sezzle aims to be the “go-to” payment tool in Gen Z’s wallet, fueled by rewards, budgeting tools, and credit-building features.

11. Valuation Discussion [39:00]

• At $2.6B market cap, Sezzle trades at 14–15x forward P/E; EPS nearly doubling YoY.
• “If we can get to like the average multiple that they've had 23, 22ish over the last few years, you're talking like a potential 30% CAGR for five years, right?” [41:22]
• CEO’s alignment/incentives praised (never sold a share, substantial buybacks, cautious capital allocation).

12. Risks & Industry Headwinds [44:50]

• Main concerns:
  • Recession: Could curtail consumer spending and drive up defaults; yet Sezzle loans are small and short-term, allowing for rapid risk management.
  • Regulation: Ongoing, but recent Consumer Finance Protection Bureau (CFPB) reports have been favorable to BNPL.
  • Misconceptions: Many see BNPL as high-risk, yet data suggests lower default rates than traditional credit. “Both reports found that BNPL had a much lower financial burden on the consumer than traditional credit.” [46:27]

13. Common Investor Misunderstandings [49:54, 50:11]

• Most assume “it’s just your run of the mill BNPL and that it's for subprime people who can't get access to credit” [50:24]
• But Mark argues: “It's more of a reverse budgeting financial tool. [And] they have low customer acquisition costs because their main target is transitioning new users and existing users into premium subscribers, which just flows right to the bottom line.” [52:06]

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Notable Quotes & Memorable Moments

• On Sezzle’s unique positioning:

  “They are actually working to like live in the top of the consumer's wallets.” — Mark [07:21]

• On personal experience with credit cards:

  “...The reality is I was their ideal customer, living with maximum limits stuck, paying a minimum balance over and over as interest accrued, right? So as like a dad today, if I fast forward my kids to when they're 18, I'm much more comfortable being like, hey, if you want to build your credit, here's Sezzle...” — Mark [22:44]

• BNPL vs. Credit Card attitude:

  “It is funny how credit card users look at BNPL like it's this bearish signal...when in reality, credit cards are far more predatory.” — Ryan [25:52]

• On Sezzle’s 2030 Vision:

  “The way Sezzle continues to grow, that generation continues to age. It becomes their primary means of using credit...the more that the conversation, like my point, becomes normalized, the more opportunity I think they have for growth.” — Mark [34:27]

• On CEO’s shareholder focus:

  “He’s 44, invested in the company. It's his prime net worth has never sold a share.” — Mark [43:20]

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Essential Timestamps

• Mark’s investing philosophy & Sezzle intro [01:57–03:10]
• BNPL vs. Credit Cards basics [03:10–05:43]
• Sezzle's merchant-sided vs. consumer-sided BNPL [06:41–08:44]
• Company history & business pivot [09:26–13:00]
• Profitability turnaround & CEO impact [13:00–14:55]
• State of BNPL industry & perceptions [17:50–21:20]
• Personal credit card experience [21:20–25:52]
• Income statement & growth [27:03–31:30]
• 2030 vision [32:18–35:13]
• Valuation analysis [39:00–43:11]
• Risks/recession discussion [44:50–49:06]
• Investor misconceptions [49:54–54:23]

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Conclusion & Where to Find Mark

Mark (“Manu Invests”) publishes deep dives and portfolio updates at manuinvests.substack.com and posts on Twitter/X @manuinvests.

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Summary prepared to retain the tone, nuance, and flow of the episode for listeners seeking an actionable, nuanced understanding of Sezzle and the BNPL space.

Transcript

[A]

This episode is presented by Interactive Brokers. Interactive Brokers is the best platform for global investors. From their one of a kind market coverage to their best in class pricing, IBKR truly has it all. If you're serious about investing, head on over to ibkr.com stay tuned for more Interactive Brokers later in this episode.

[B]

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode.

[A]

Welcome into Chit Chat Stocks, a podcast to help you find your next great investment. Today we have Mark from Manu Invest and Fundamentally Sound. He is a writer on Substack. He has worked in finance for 10 years and now runs a nonprofit. If we want to talk about the newsletter Fundamentally Sound covers in depth reports, portfolio updates, trade updates and subscriber chats. Plus many other features for subscribers. For any listener at least, what Manu has to say or Mark, Excuse me, I might get that confused. What Mark has to say today, please check out his work. The link will be in the show notes or you can find that on Substack. And I think honestly I've googled it before and it's the first results. Fundamentally Sound or Manu Invest. So what are we talking about today? Sezzle, S E Z Z L E. A new buy now, pay later solution that is growing like gangbusters and actually profitable earnings are upcoming in February. We're recording this on January 27 for any reference for any news that comes up after this recording. But first let's just get to the basics. Mark, how did you find Sezzle and what did they do?

[C]

Yeah, so first off, thanks Brett Ryan, big fan of the show, longtime listener, first time guest. So yeah, it's an honor for me to be here. I appreciate you guys reaching out, but Sezzle really crossed my my radar because with my portfolio I really try to like anchor it and big quality compounders, but I always try and put like 10% of my holdings into potential multi baggers that I think are like asymmetrical opportunities. So they usually start off as like 2% positions, but as the company continues to execute I'll add to it which has been the case with Sezzle. So it really first showed up for me. You know I occasionally run like multi bagger screeners, high growth, looking for like profitability, inflection companies and Sezzle Continued to pop up. It was also popping up when it was really at its heights last year. So it was on my radar. And you know, as it came down, I became more interested and decided to dig in some more. And now it's a decent sized position in my portfolio.

[A]

All right, let's go through what the company does. It's Buy now pay Later. People have heard of that. They go, I think if your grandma is listening at home or something like that, someone, someone older that even was around before, you know, credit cards became popular, I'd say, well, you're buying now, you're paying later. Isn't that just a credit card? What exactly are they doing? Why and how does the business model from a top, you know, top level overview work?

[C]

Yeah, so Sezzle is a Buy now pay later BNPL company which essentially is a different form of it. It targets SE's prime customer is actually near prime or subprime consumers. So that's what kind of gets a little bit of the negative sentiment around it as well. But essentially they are a different alternative credit offering to credit cards primarily based around like paying four pay in five solutions, you know, for cash bridges, short term purchases. What really differentiates them is the view of the CEO is that Sezzle is really like a financial well being app that they are giving credit conscious consumers and consumers with higher financial literacy the ability to budget and almost reverse budget as a, as opposed to getting stuck in like the traditional high interest credit card cycle.

[D]

What. So this might be sort of a basic question, but what is the general appeal of Buy Now Pay later as opposed to credit cards?

[C]

Yep. So credit cards have obviously been around for quite a long time. Buy Now Pay later if you, the main product is what's called paying for. So you put a 20% down payment at purchase and then every two weeks you make additional payments. And when you do that, they have a variety of products, they have a subscription one, but ultimately you're either paying a subscription fee for the access or you're paying a transaction fee and in return you have zero percent interest. So as opposed to a credit card where you're accruing interest if you don't pay off the balance. If you make your payments on time and in the four periods you get zero interest on your charge.

[D]

And if you don't make your payments, you just don't have access to any more credit essentially.

[C]

Yep. So couple things. So Sezzle, they do lock access based off payment. So if you miss a payment, you cannot use more Buy now pay later funds, but they Also have flexible repayment so you can like push back your payment date by like a week for like a $7 charge or $15 charge. So they give you the opportunity to be flexible and avoid like the, the negative consequences that often come with missing a credit card payment.

[D]

Okay, makes sense. On the differences between BNPL and credit or traditional credit I should say. What about them is different than other BNPL providers? What makes them kind of stand out relative to the trying to think the other ones, Affirm and Klarna, I think.

[C]

Yeah, those are the big ones. And then afterpay is like big in a big Australian company. So typically Buy now, pay later. The most times you'll encounter it is on like an E commerce website. It'll say like hey, you go to checkout and it'll say would you like to pay in four or would you like to set up a payment plan with Affirm or Klarna. So traditionally buy now, pay later is typically what's called merchant sided. So a firm or Klarna are creating a relationship with the merchant with the one selling the product. And that pitch is that we are going to take a percentage of the sales because we increase your consumers by about 20%. Right. So there's a trade off. The sellers are giving away some of their margin on sales, but in return they're seeing higher revenue from sales. So Sezzle actually kind of started that way and didn't have much success. And what they did was they pivoted to what they refer to as like a consumer sided BNPL model which means that their customer isn't the merchant, it's the person, it's the consumer themselves, the one who's spending the money. So they are actually working to like live in the top of the consumer's wallets. So they do have a percentage, a good range of merchant sided agreements. So there's plenty of stores that do accept Sezzle, but they have other products which are their main driver of profitability and high margin, which is like the big one's called Sezzle Anywhere. And what that is is the consumer is paying a subscription to be able to use Buy now, pay later anywhere, anywhere that Visa is accepted. So you're essentially like tapping with your phone as if it was a credit card and it's setting up a pay in for payment on your phone.

[D]

Yeah, as I say anywhere that Visa is accepted. That is, that is pretty much any.

[C]

Pretty much anywhere. Yeah.

[A]

Yeah. Let's. We'll maybe talk on the Visa partnership later in the show. And I have a question about the business history and maybe this can relate to it as leading question here. But I forgot to even look at the stock chart before we record. And I kind of see. Well, I mean it's up 400% in the last five years. But there was just a. I don't even know what happened. It went up. I'm trying to even do some mental math here. Almost 10x in a couple of months. What happened there in early 2020 and maybe how does that relate. They have this business model change. Just take us through that history along with, you know, what happened with this stock.

[C]

So the history of Sezzle itself. So it, it's kind of cool just to touch on the CEO a little bit. It's the founder CEO. He owns like 45% of the company. He actually. I don't know if you guys. We have like Park Boston. When we park at parking meters, there's like an app to pay. He actually developed that eventually with a family member. There was a falling out. He had to go a separate way. But him and a few friends or partners started Sezzle and they really wanted to stay in the payment space. So Sezzle originally was just like a. An option for online payments they would embed similar to a firm, but they were more like a PayPal, like pay with Sezzle, lower transaction fees. And they awkwardly listed on like they got. It's kind of like a meme. They listed on like bong shop sites and odd stores just to try and gain some traction. And it did not work. And they originally were listed in Australia as well. So you know, they, they thought, what should we do? They noticed afterpay they talk about Australia being like the mini us like a good test market for the US they saw afterpay was taking off and so they decided to switch to a paying for BNPL product. They did that. They listed in Australia to raise money and things were going well. But. And they started, they almost got acquired by a company called Zip, which is another big payment processor in Australia. Things were going well and then like 2022 hit and the consumer tightened up and they weren't profitable and the merger fell apart and they were basically burning their money. And they really had this, this moment of transition of what the model was. You know, I think they laid off 45, 50% of their staff. They went like ruthlessly cost cutting. And you know, investors were pushing them to raise money, but their stock price had crashed so much they were like, we can't raise at these valuations. We have a year to become profitable. And so they Ruthlessly did that. And really in like 24, 25 that profitability kind of took off. They launched Sezzle anywhere. Their business model completely changed and they really differentiated themselves from some of the other BNPL with their margins and their profitability. And I mean it hit some crazy multiples. They started growing at some crazy growth rates and the stock definitely got extended a couple months ago.

[A]

Yeah, I mean that's what I mean. Ryan's going to share a little screen here for anyone watching the video when this is I think a lesson for the listeners when a company flips while also growing revenue, you know, at a quick pace from unprofitable to you know, a nice little operating leverage trajectory that can just lead to some monster returns and people making it turn into a momentum stock. But let's get back to the business. Maybe my follow up is what, what, what would you say was the key to them actually getting profitable compared to the competition? Like what, what happened?

[C]

Yep. So I really like the CEO Charlie Yim. I think it's pronounced. He does a ton of interviews. I highly recommend people who are interested to just YouTube him his earnings calls. I don't know if you guys have listened to any. Every single one ends with a Buffet or Munger quote. So good sign. Yeah, immediately caught me with that piqued my interest. But ever since that transition, you know they went ruthless cost cutting, they went ruthless efficiency and he very much their motto and like underlying mission is to be is for profitable growth. So he will regularly talk about on earnings calls about how you know there's various strategies for BNPL.1 they're different because they're 100% focused on BNPL whereas a firm Klarna they also have longer term interest bearing products but they're like truly focused on a buy paying for the other is that you know he'll comment and speak to other companies going the burn cash to grow our customer base route and turn them profitable later. And he essentially said based off my past experience with business and my business philosophy, we are going to conservatively grow at a pace that maximizes profitability. And I think they've been extremely successful in doing that. And you know, as we talk about some of their products, maybe a little bit later they have a unique ability to grow from within as well as they cross sell some of their users to their higher margin products.

[D]

So you mentioned sort of the user first approach. Why if you were a merchant why wouldn't you accept sesil? Like wouldn't you just kind of want to take be accepting to all BNPL providers just based on whatever the users like or are there like exclusive deals? Like what is. Why do merchants make a preference if they do?

[C]

Yep. So I think Sezzle did get a big deal with Target at one point. They do have a pretty good base, but I believe there is exclusivity agreements and, and you know, Sezzle's smaller compared to some of the other players. I think that some of them have the ability and are willing to burn cash to grow user base and access. And you know, if you're a merchant and you're debating between, you know, Klarna or a firm and Sezzle, Sezzle's like monthly active users. They, they have a stricter definition of what a user is as opposed to the other BNPLs, but it's much smaller because they're not focused solely on user growth and they're focused more on building their premium products with subscribers with long term, long lifetime value. So if you're a merchant and Kleiner says we have X amount and Sezzle has one fifth of that, you know, I think merchants may tend to lead to the lean towards the higher user base.

[D]

Makes sense. Does the Sezzle anywhere circumvent that? Like it sounds like if you have a Visa card and pretty much everyone accepts a Visa card, it's sort of a workaround, but ultimately you're still using Sezzle.

[C]

Yeah. So that, that's exactly what it is. So the, the merchant doesn't even know you're using Sezzle. Right. So they, they issue you a digital Visa card that is tied to your Sezzle account, bmpl, so can be used anywhere you pay a subscription to get access to that. And they do have another product called Sezzle On Demand, which is similar. It essentially allows you to go up to the counter, say, I want to buy this using Pay in four with Sezzle. Even if they don't accept Sezzle, you can do like a one time, essentially Sezzle anywhere type of transaction for a fee. And Sezzle also uses that to approach merchants and say, listen, you know, 20% of our shoppers are coming here. Would you consider embedding us as, as a provider?

[A]

Okay, I want to talk about the state of the BNPL industry as a whole. It was something that in the 2020, 2021 hype cycle, it was one of the industries that was definitely hyped up. We saw a lot of takes out there that it was going to disrupt the entire credit card industry, the entire current payments network. And then people just stopped talking about it for many years. We've seen a little bit of resurgence with some of these companies growing and now getting profitability, sezzle included. But how was the overall industry grown? Because I would say I'm someone that totally forgets about this market at all. But it seems like, I mean, correct me if I'm wrong, it actually keeps taking market share.

[D]

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[C]

Yeah, so BNPL has grown, you know, as of like 2023 there was like 45 billion in originations and in like 2019 it was 3 billion. So and expectations for this year are to be close to 600 billion. Users have almost tripled in that time period. And I think Morgan Stanley was the one with the report, but they essentially are estimating that BNPL could get 900 billion close to a trillion by 2030. So that's like a 10% growth CAGR. It was very rapid the last few years. It is starting to slow down, but it's still maintaining like a 10% growth CAGR. And there's a lot of room to grow. I think like 75% of Americans use credit cards. But, but it's still only like 15% of Americans use BNPL. Up until I became a SES, I, I got SEZZLE as an investor to just try it. But up until that point, like I've never used bnpl. And you know, if, if sezzle. So I think some of the change in sentiment also has been that over the past year or so in particular there's been a lot more like subprime negative headlines with some of the auto lenders and student loan defaults. And I think BNPL probably has a little to do with like the credit card industry as well is being lumped into that. Right. It's, it's being talked about. Like it's risk taking, it's extra debt. I think very differently of that. You know, I'm happy to give you my, my take on BNPL overall, but I don't want to jump. Any questions if you got something else you want to go down?

[A]

No, let's, let's, let's do it. Personal experience. What do you think?

[C]

All right, so me personally, particularly with Sezzle, I think a properly run BNPL is way more consumer centric, consumer friendly and ethical than traditional credit cards. And like, I see headlines that are like, BNPL is used to buy groceries now. Or I see like X posts that are like, I saw someone at Chipotle using BNPL and I wanted to go up and swipe my card to buy their mail for them. Like, it's so sad that people are leaning on BNPL when the reality is, if you polled me, I use 100% of my transactions are on credit cards. Know, I do it for travel rewards, but. And for like fraud protection and all that. I pay it off weekly, but 100% of my transactions are by definition buy now, pay later. Right? People talk about credit cards as if they're not buy now, pay later. A credit card is the strictest definition of buy now, pay later. And you know, I think, you know, anything new always catches flack. Right? You know, my mom will say to me like, oh, you're not using bnpl, are you? Like, like, like my credit, like my wallet's not full of credit cards. But the reality is, is that the fastest growing segment of BNPL is young people. And Sezzle in particular often serves people who like, don't have traditional FICO score history and stuff like that. Right? So it's a little more flexible for them. They have an opt in where you can build credit and report to FICO if you'd like. So it's a tool like that. But the reality is I'm a much bigger fan of giving someone the ability to reverse budget than I am of giving someone a revolving credit line. Right? So full disclosure, I'm a person in recovery from addiction and you know, I just celebrated 10 years. My life's amazing today, but I was handed a Discover card in college. My mom encouraged me to get it right and it had a 3, 500 balance and I bought a lot of stuff and did not pay later. Right? So even as an irresponsible young adult, I wasn't great with credit. Add in the circumstances of my life and credit became a revolving trap for me. It was minimum payments Maxing out credit lines, and there are times where I'd call Discover and I'd say, hey, I had an emergency. My car broke down. I maxed out. Can I have a $500 increase? And rather than a 500 increase, they gave me a $5,000 increase, right? Because the reality is I was their ideal customer, living with maximum limits stuck, paying a minimum balance over and over as interest accrued, right? So as like a dad today, if I fast forward my kids to when they're 18, I'm much more comfortable being like, hey, if you want to build your credit, here's sezzle, right? You have the ability to report to fico. You have the ability to buy now, pay later, but you have to do it in a responsible way. Your access gets cut off if you don't make a payment. You can't exceed a certain limit, and you have to pay it off in four payments. And when you do, they increase your limit a little bit, right? So while I prefer everyone to only buy what they afford, that's not how America functions. But in my opinion, you know, there's all this talk about credit card interest limits and all that, right? I have the ability to buy something now that I want to pay for later with 0% interest in a responsible and managed way, with a product like Sezzle, where a credit card gives me the ability because life happens, but it gives me the ability to defer it to next payment cycle and to pay 27 interest on it. So in my opinion, the. The whole sentiment is kind of skewed a little bit, and people are just used to what they're used to. And, you know, when anything new shows up and when those crazy kids are using something that. That they're not familiar with, it automatically gets a negative sentiment.

[D]

Yeah, it is funny how credit card users look at BNPL like it's this. Like it's this bearish signal. Like, look how many people are using credit. They shouldn't be using it. When in reality, credit cards are like, far more predatory, far more. BNPL cuts you off. You don't make a payment, they cut you off. They don't say, you know, let's up those limits. Now's the time to really up the limits.

[C]

Yeah, pay us $25 minimum payment and you're good.

[D]

Yeah, yeah, I think it's a good. I think you're right, and I agree. Let's maybe talk through the income statement a bit, because sort of a newer business model, some people might not be familiar with kind of how the economics work here. So how are they give us some of the numbers but also how does a company like this grow? Is it like just pure marketing to customers? Is getting integrated with merchants like a form of marketing as well? And just I guess that's kind of a lot to throw at you, but growth and income statement.

[C]

Yeah, so their income statement, their top line revenue is growing at like 70%. They have 60 gross margins a little higher. Their net income margins are like 28, 29%. They're, they're a free cash flow positive. That also stands out against a lot of the other BNPLs, which is a nice little position to be in because they can self fund a lot of the growth. They have like 33% adjusted EBITDA margins. And you know, just looking at their net income, right. I think, I think affirm is negative. And Klarner is about half of what Cecil is. It might be flipped, but that's the reality. And so the way Sezzle grows, grows, their re revenue is it starts at, you know, gmp, which is gross merchandise value. So the more people spend either way, they get transaction fees, they get a percentage of the Visa charges of the network charges paid back. So GMV increases. Good. They have like an 1112 current take rate and then what, what comes out of that primary, you know, their cost of revenue, which is primarily because, you know, at this point with their operating leverage, their tech is already built. All that is primarily like provision for credit losses. So last quarter that was like 3.1 or 3.2% which was a little spike and was probably responsible for a little of the drop in the stock price, but pulling that out, you know. So for every $10 they take, they're paying $3, 3 some odd dollars in provisions plus additional costs and they end up with a 60% gross margin. So they grow through, you know, expanding their merchant network. They take a, as opposed to like a Visa card standard transaction, which is like 3% and $0.30 or something like that. BNPLs typically take double that, but they assume the risk also. So they're paying the merchants. So merchants are willing to pay a little bit more, sacrifice some margins, less exposure and they get the cash right away. So, and they increase customers. So as their merchant base grows, they increase transactions, increase fees that way. So their marketing spend, they're on the Timberwolves jerseys nowadays, you might notice, looks pretty good, but so yeah, they're marketing to new customers and what, but their primary driver of growth, like revenue grew at like 60% I think and customers grew at like 12% so this is kind of the differentiator is that what they're doing is focusing on transitioning. So they want to acquire new customers through merchants, through branding, through advertising, but they want to transition those customers to what they call mods, which is monthly and on demand subscribers. So those are the people paying for the premium Sezzle anywhere or paying the high fees to use Sezzle on demand. And that's a much higher margin product for them. And then what they're doing is they're working to make the app itself and their product much more engaging. They have like financial literacy tools on there. They're starting to do rewards so you can get cashback rewards you can participate in like games that probably advertise to you, that give you Sezzle bucks back. And what they're finding is that, you know, subscribers are spending using their, the product like 10 times as much as somebody who is just doing the pay in for a checkout. So that's their big, big growth right now.

[A]

Now I wanna and well to mention that it's. I like the business model of almost being a membership program, a subscription similar to at the end of the day, that's almost how American Express and the Chase credit card businesses are. Where yes, they have credit cards and as you mentioned, you know, it's all buy now, pay later. But the really the reality is people join these different payment methods for the perks they provide. And if Sezzle can build that ecosystem, that feels like a smart way to go about it to try to differentiate themselves. But I want to talk about the growth picture. Looking back, let's say we're in the year 2030 or five years from now, however you want to describe it, why would more people use Sezzle? What causes them to gain market share and just overall the competitive landscape, how you see it.

[C]

Yep. So 2030, looking back, I think Sezzle continues its transition from more. So here's the way I look at says a little bit it's more than just like paying for at checkout. You know, like I said earlier, they're leaning to live in the consumer's wallet. So as we go to 2030, you know, in my opinion Sezzle's primary growth is actually being more of a credit product itself based in like paying for. Right. As an alternative to credit cards rather than. And and is focusing on consumers who have like high intention use of that. So rather than someone just going on to Amazon and being like, I want to buy this laptop. Oh wow, it says I can pay in four. Right. And caught my attention and caught Me as a user that way they're doing that with merchants. But the people that they're going to be most effective with as like a credit product are people who are looking for an alternative to traditional credit cards. And their largest user base is Gen Z and younger individuals. And all trends show that the fastest growing use of BNPL is younger Americans, right? So the way sezzle continues to grow, that generation continues to age. It becomes their primary means of using credit. As as young people become more financially savvy and financially educated, they start to turn to like 0% BNPL more than they do credit cards. And today, like, you know, one of the downside downsides of our kind of K shaped economy is that student loans and stuff like that are weighing heavy on consumers and are adversely impacting traditional credit reporting, right? So because of economic environments or maybe initial irresponsible lending decisions, the NPL starts to become a point of access for like a cash bridge for consumers who are feeling the stress of like student loans coming back on after a period of being off. And whether they're being introduced to sezzle that way or through advertising, the more people that get that become exposed to it and the more that the conversation, like my point, becomes normalized, the more opportunity I think they have for growth.

[D]

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[A]

All right listeners, I want to take this time to remind you about the Emerging Moat Stock Research Service, a newsletter that will produce a stock research report every four weeks and regular updates on existing stocks. In the Emerging Moats universe, we have an upcoming schedule including a research report. On Wix.com, we have interactive brokers, American Express, Nintendo, Airbnb, Nelnet and much more. Please, if you want reach out and get a complimentary free trial. You can do that by contacting me through the link in the show notes and giving me a DM on substack. I hope you'll try out the service.

[D]

You mentioned that you tried it out because you were more interested as an investor. What was the experience like? Was it kind of everything you were expecting? Any anything to note?

[C]

Yeah, it was actually cooler than I expected. So I didn't become a subscriber. I just did a standard pay in four just to test it out. But the app is actually much more than I expected. It's. It's become like a shopping app. So the same way that you open up, like, you know, Uber and get hit with a bunch of. One of my favorites, when you get hit with a bunch of like, hey, you're searching for pizza, you know, go to the gas station, go to this pizza shop and get a 9.99 pizza. Or you get all these pop ups. So the same thing happens in Sezzle. So when you open the app, it's like featured products. There's a whole bunch of stuff that's on sale that's targeted towards you. There's gas station deals, all the same type of stuff that you're seeing on Uber. So, you know, cost conscious shoppers also, like, when you open the app, you can get a deal. Right. So they're really encouraging people to become Sezzle first. Like, let me check Sezzle for a deal before I go on Amazon or before I Google it. And I thought it was really cool. You know, they had a. A bunch of deals that I wasn't expecting laid out in front of me, but it was super easy to sign up for. Super easy to use. I was impressed.

[D]

Is that advertising revenue for them as well, or they just making money on the back end?

[C]

No, I, I think right now it's making money on the back end.

[D]

Makes sense. All right. Unless, Brett, maybe you have any more questions on the financial profile? I'd love to talk valuation. What do. I guess you already kind of talked about management a bit. What does capital allocation look like today? What does the actual valuation? What's the value? This. This might be outdated by the time it comes out because I think we're recording this about a week before we produce it, but I'm looking at like a 2 billion, roughly $2.6 billion market cap. How much do you think they could earn? Yeah, talk, talk through. Any thoughts on the valuation?

[C]

Yep. So right now I think that brings it to like a 14 or 15 forward PE. But, you know, EPS is almost doubling over the last year it's got like a peg of 0.6, so it's extremely fast growing. I think they guided for next year for a 29 year over year for EPS, which is growth that I'm happy with. You know, it's toning down a little bit because they were growing so rapidly, but that's to be expected. Um, so they did this year. They also focused on a couple new products and stuff like that that they pivoted off to because it wasn't transitioning to subscribers as much as they wanted to. So there was a little bit of, of of spike in GMV and stuff this year as they were focused on the on demand product. But you know, Sezzle has shown, right. If they can keep up 25, 29% growth. And the, the reality is they increased guidance every quarter for the last four quarters, right. So they, they always start with an annual guidance. They go out and say this doesn't include any of our new products. And every single quarter for the last year they've raised that guidance in as, as recently as last quarter. So you know, that's kind of the expect, not expectation. But that's the stuff I like to see going forward. But I think, you know, they can, I think we're going to see a big quarter this year. There's tons of stats that show BNPL spending was a huge increase from prior year during the holiday season. The thing about sezzle is that Q4 and Q1 get a little odd because of Gap rules. They have to recognize provisions when they issue the credit in Q4, but it gets paid back in Q1. So Q1 typically sees the major revenue spike as a result of Q4 spending. But yeah, I mean, I love the CEO. Their ROE is like 100%. You know, they're extremely focused on profitable growth. They, you know, we're sitting at like a 14 forward PE. If we can get up to, you know, we've seen that Sezzle can get to high growth multiples, right? But if we can get to like the average multiple that they've had 23, 22 ish over the last few years, you're talking like a potential 30% CAGR for five years, right? Even if you slow, that's assuming EPS can grow around 25 a year. But even if you slow that down and still stick them, you know, slow it down by 10 a year and still slap them with like a 15 pe, you're still talking 15 returns as a base level with no, no multiple expansion. And with like a slight expansion, you can get up to 2025 returns easy. So from in my opinion, I think sezzle is pretty primed right now. I think the big thing holding it down is a lot of the sentiment and I think as they continue to execute through that and they continue to show their profitable growth, you know, that they can experience a decent rewrite up and be a potential multi bagger.

[D]

You mentioned that forward PE and my instant thought was oh all right. Well, yeah, well stock based compensation is probably a big headwind there. I just checked it. Pretty low share based compensation, just 2% of revenue. So that 4P is valuable metric to use here. I was assuming younger tech company, it's probably going to be egregious but no, it's pretty impressed by the limited share based compensation there.

[C]

Yeah. And they just, they, they got a buyback program going, they wrapped one up. So you know, Charlie speaks, you know, he says when we see our stocks undervalued, we're gonna buy it back. You know, he's 44, invested in the company. It's his prime net worth has never sold a share. You know they've been growing at crazy rates. You know, I'm not, I'm not having unrealistic expectations that think, you know we're going to grow 100%, 70% year over year every year. But I think that the BNPL market tam has a lot of room left to run. I think it's still in a very young state of like acceptability how we were talking, you know, I think guys and people our age don't typically get introduced to BNPL that much. But I think as younger people get more introduced to credit that they got a long Runway ahead of them.

[A]

Okay, let's talk about risks to the business. We had some questions from Twitter and clearly when they're a lending business, a lot of the, I think all of them are around things including late fees, increased credit losses. I'm not sure what RLTC margin is, but it compressed and someone is concerned about it and then tail risk in a market meltdown. I think in general it's like okay, what happens in a recession? What do you think that risk is and what could go wrong with sezzle as an investment?

[C]

Yeah, so recession for sure is the primary risk. You know, like, like any business in a recession they'd feel a huge tightening up from the consumer and there for sure would be an increase in defaults as they're targeted towards near prime and subprime users. But you know, I, I currently feel like a lot of that's baked in. You know, I keep hearing about the recession that has yet to come and I think that's a lot of why the price has traded down so much. But you know, not to say that recession isn't a risk. It is one way or another. It would increase, decrease spending. But I do think Sezzle is positioned on a good loss prevention style of product because you know, their loans are like four to six week long and they're typically less than $150. So they have the ability to tighten up very fast. Right. As soon as someone doesn't pay, it's paused. They have no further access, they have rapid turnarounds. So there's been a couple CFPB reports, Consumer Finance Protection Bureau reports. There's one in 22 that I have a couple posts on and one just came out in December. And both reports found that BNPL had a much lower financial burden on the consumer than traditional credit. But also that BNPL defaults were half of that of traditional credit and that the primary risk of defaults or non payment wasn't people not paying back their bnpl, it was people not paying back their traditional loans and continuing to use bnpl. So for numerous factors, one being, you know, getting into a bad auto loan that you can't afford is a decision that has a lot of implications to it and it's you know, five years or more long. So consumers tend to do I want to pay off this $25 payment four times on Sezzle and maintain access to BMPL or do I want to throw cash into the incinerator on this loan that I'm not going to be able to pay back anyways? If I'm tight on money, do I want to pay back my student loan or do I want to ensure that I have cash access to bridge me between paychecks, pay off their BMPL and sezzle is actually I feel like in this unique position where like they do well in a like tight consumer economy because people are leaning on them as like a cash bridge more. Right. They're leaning on access to credit, but they also do well in like a booming economy too because there's more gmv, there's more stuff being purchased. Right. So they're kind of uniquely positioned to like benefit from both scenarios. But undoubtedly a recession would pause spending. It might not result in like heavy heavy losses, but it would result in less revenue and less GMV and take rate also there, you know, there's always regulatory risks. Like I said though, there's a couple reports that you know, lean favorably to bnpl. There's some stuff about like disclosures and stuff that they think should be more transparent, but you know, you never know what's going to come up, like the 10% credit card cap. So regulations are always a risk.

[D]

Is, is 10% credit card cap not like, would that not be extremely bullish for buy now, pay later providers? It feels like people would have to turn somewhere if they're not being extended credit by their credit card providers.

[C]

Yeah, I mean, that's my opinion. Right. I mean, I don't think that in reality can or will happen, but if it does, banks have already said like 6, 50% of our lowest credit score. Consumers are going to be dropped from credit. And for better or worse, America lives on credit. Right. So the, the place to turn is the NPL and it's got, and it's got 0% interest. It's not under the scrutiny that's catching the administration's eye with the 27% interest rates on credit cards and stuff like that. So in my opinion, if it went through, it'd be extremely beneficial for Sezzle and BMPL in general.

[D]

Okay, I think we're kind of hitting our last couple questions here. What would you say is one thing investors get wrong about Sesile? I will personally admit the name was a bit of a deterrent for me, but that's kind of beside the point.

[C]

Yeah. So let me loop back real quick. You mentioned like RLTC and late fees and stuff like that. The reality is, is that's part of credit business. That's part of BNPL business. There has been an uptick in provisions which is compressing margins, but they went up to like 3.1. They started the year in the mid single, you know, 1.5 ish. They're still within the lower end of their annual range. And it was mainly because they were onboarding a lot of new customers with Sezzle on demand. And when you rapidly onboard, you have higher provisions initially. I'm also not the biggest. I don't hate conservative provisions as much as some people do. Sezzle with like the exception of one quarter, I think over the last two years, has never exceeded their provision rate in actual losses. And where they do over a provision, it comes back in less provisions further down the line. Right. And then late fees. Part of that is Sezzle's product as well is they give you the opportunity to reschedule a payment for a high margin late fee on their end. So maybe not be the greatest sign for consumer health, but SEZZLE has repeated that they're not seeing extreme weakness. So that's just some extra stuff that you mentioned came up on Twitter. But what I think most investors get wrong with Sezzle is, yeah, they don't know what it is but two, that it's just your run of the mill BNPL and that it's for subprime people who can't get access to credit and they're using it because they're leaning on debt to survive and they're extra risky. Right? So like I said, there's their short term loans, there are low value loans, they're 150 bucks, they last six weeks. People prioritize that over larger payment burdens. But the reality is the way I look at Sezzle is that it's more of a reverse budgeting like financial tool. They have low customer acquisition costs because their main target is transitioning new users and existing users into premium subscribers. You know, which just flows right to the bottom line. Lots of people say like, oh, I've heard plenty of times you could just go on bnpl, buy something and never pay it back with no impact to your credit score. So a lot of people do report on Sizzle to credit voluntarily. But either way you can't just true and screw, right? Sezzle sells your loan, your defaulted loan to collections and collections reserves the right to report you to credit. So there is negative consequences. And on their actual losses, cecil has like a 15 recovery rate. So they often do get a chunk of the money back. But like I said, everyone hears the main things people get wrong. They hear subprime non fico scoring buy now, pay later. They're like, see you later. And I think that's an incorrect assumption. I think people inherently think buy now, pay later is extremely negative, that people are looking at it as like it's an additional debt burden. As I said at the beginning, I think that's the wrong perspective to have. Not that there's not people who are leaning on it that way, but I actually think that Sezzle is in the position to become, you know, a new go to Wallet product to provide individuals like with responsible access to credit and an opportunity to build their credit scores.

[A]

All right, Mark, thank you for all of the color on today's episode. Thank you for talking to us about Sezzle today. For any of the listeners that are more interested in your work, I know you cover Uber. You cover many other stocks. You even had the General himself, Bill Ackman, give you a retweet and share on your Uber thoughts, which have been quite thorough, I would say. But again, I'm going along here. Where can people find you? And we'll make sure to put all those in the show notes.

[C]

Yep. So you can find me on, you know, my main platform is Substack. Just search Manu Invests or fundamentally sound. It's ManU invests.substack.com tons of free content, more content for premium subscribers. I'm also pretty active on X at Menu Invests.

[A]

All right, thank you listen for joining today. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guest may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone once again for tuning in. And thank you, Mark. We'll see you next time.