Is the Sezzle Inc (ASX: SZL) share price a buy?
Sezzle is one of the buy now, pay later businesses on the ASX. Like others in the sector, it offers interest-free instalment plans at online stores and some in-store locations.
In Sezzle's latest quarterly update, for the three months to 30 September 2020, it said that its active consumers had increased by 178.1% to 1.79 million and active merchants went up 178.3% to 20,890.
What has been happening recently?
The Sezzle share price has gone up by just over 280% since the start of 2020. However, the Sezzle share price has actually dropped 44% since 28 August 2020.
The ASX company has been delivered triple digit growth this year with its sales metrics.
For the three months to 30 September 2020, Sezzle saw its underlying merchant sales (UMS) rise by 231.5% to US$228.2 million. This represented growth of 21.4% quarter on quarter.
It also reported that its merchant fees went up 260.6% to US$13 million, which represented quarter on quarter growth of 22.5%. Merchant fees as a percentage of UMS rose 46 basis points year on year to 5.7% – this was an increase of 5 basis points quarter on quarter.
The trend of lower year on year gross losses on notes receivable and net transaction losses as a percentage of UMS continued in the third quarter, resulting in "relatively low" loss rates.
Finally, Sezzle's active consumer repeat usage rose to 89%, this was an increase of 748 basis points year on year, it was an increase of 41 basis points quarter on quarter.
At the time of the announcement, Sezzle's executive chairman and CEO Charlie Youakim said: "We are extremely proud of our team and what they have accomplished in 2020, but we are not done. Our product initiatives and merchant pipeline have never been better and the current quarter has gotten off to a solid start. We believe we are well-positioned, as we head into our strongest seasonal months of November and December."
At the end of the quarter the company had US$117.9 million of cash and cash equivalents to fund more growth.
Commenting on the company's cash flows, Sezzle CFO Karen Hartje said: "Our strong balance sheet position at 30 September allows us to pursue our growth strategies and weather the protected effects of COVID-19. We also continue to see COVID-19 hardship requests decline to negligible levels. The combination of lower hardship requests and the continued improvement in our active customer repeat usage rate have played key roles in keeping our loss rates at relatively low levels."
Sezzle said that it nearly achieved its annualised run-rate goal of US$1 billion in UMS in the third quarter of FY20, with a run rate of US$986 million based on September's performance.
Is the Sezzle share price a buy?
The Motley Fool Hidden Gems service still rates Sezzle as a buy as part of a well-diversified portfolio.
Edward Vesely commented that the growth numbers from the quarter were very impressive. However, the company continues to trade at a high multiple compared to last year's revenue. He said that whilst that multiple is steep, "if strong growth rates can be maintained, then this multiple will fall drastically. For comparison's sake, when we recommended Sezzle just over a year ago, the company was valued at a price/revenue multiple of around 50 times. That is, strong growth has seen that multiple reduce, despite a more than tripling of the share price."
