Chit Chat Stocks - Sezzle: Why This BNPL Stock Has Multibagger Potential (Ticker: SEZL)

Episode Date: February 4, 2026

On this episode of Chit Chat Stocks, we speak with first-time guest Marc from Manu Invests on BNPL provider Sezzle. We discuss: (00:00) Introduction (01:57) Understanding Sezzle's Business Model (03:35) The Appeal of Buy Now Pay Later (05:50) Sezzle's Unique Position in the Market (09:24) Sezzle's Business History and Stock Performance (13:00) Keys to Sezzle's Profitability (15:21) Merchant Preferences and Sezzle's Strategy (17:50) The State of the BNPL Industry (21:20) Personal Insights on BNPL vs. Credit Cards (26:34) Understanding Sezzle's Financial Growth (27:01) Sezzle's Financial Performance and Growth Strategy (31:30) Sezzle's Future: Market Positioning and Consumer Trends (36:36) User Experience and App Functionality (38:53) Valuation Insights and Growth Potential (44:18) Risks and Challenges in the BNPL Market (49:54) Misconceptions About Sezzle and BNPL Manu Invests: https://manuinvests.substack.com/ ***************************************************** Sign up for our stock research service, Emerging Moats: emergingmoats.com  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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. Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer 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. 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 non-profit 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 that likes what Manu has to say

or Mark, excuse me, I might get 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 of FunnelMellySound 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 27th 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? 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 on my radar because with my portfolio um 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 um so they usually start off as like two percent positions um 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, And 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. 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 grandmother is listening at home or something like that, someone older that even was around before credit cards became popular.

And I'd say, well, you're buying now, you're paying later. Isn't that just your credit card? What exactly are they doing? And how does the business model from a top level overview work? Yeah, so Sezzle is a buy now, pay later BNPL company, which essentially is a different form of credit. It targets Sezzle'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 for paying 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 opposed to getting stuck in like the traditional high interest credit card cycle. 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 yep um 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 0% 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. And if you don't make your payments, you just don't have access to any more credit, essentially? Yep. So a couple of 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 negative consequences that often come with missing a credit card payment. 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 of the other ones, Affirm and Klarna? 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 percent. 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 sizzle but they have other products which are their main driver of profitability and high margin which is like the big one's called sizzle 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 and

for payment on your phone yeah as i say anywhere that visa is accepted that is that is pretty much pretty much anywhere yeah yeah let's uh we'll maybe talk on the visa partnership uh 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 2025 and maybe how does that relate they had this business model change just take us through that history along with you know what happened with this stock

um so the history of sezzle itself um so it's kind of cool um just to touch on the ceo a little bit it's the founder ceo he owns like 45 of the company um he actually i don't know if you guys we have like park boston um when we park at parking meters there's like an app to pay he actually developed that um eventually with a family member there was a falling out he had to go a separate way um but him and a a few friends or partners started sezzle and they really wanted to stay in the payment space so sezzle uh 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 um and they awkwardly listed on like they got it's kind of

a meme they listed on like bong shop sites um and odd stores just to try and gain some traction and it did not work um and uh they originally were listed in australia as well um so you know they they thought what should we do they noticed afterpay they talk about australia being like the mini u.s like a good test market for the u.s um they saw after pay was taking off and so they decided to switch to a paying for bnpl product um they did that they listed in australia to raise money and things were going well um but and they started they almost got acquired by a company called zip which is another big um 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 percent 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 um and so they ruthlessly did that um and really in like 24 25 that profitability kind of took off um they launched chisel 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 of months ago. 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 at a quick pace from unprofitable to 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 would you say was the key to them actually getting profitable compared to the competition? What happened? Yep.

Yep. So I really like the CEO, Charlie Joachim, 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 Buffett or Munger quote. So 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 um 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 one they're different because they're a hundred percent focused on bnpl whereas a firm

clarna they also have longer term interest uh bearing uh products but they're like truly focused on a buy pay and for um 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 um turn them profitable later and he essentially said based off my past experience with business and my business philosophy we are going to uh conservatively grow at a pace that maximizes profitability and um 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 so you mentioned sort of the user first approach

why if you were a merchant why wouldn't you accept says 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 yeah so i think um cecil did get a big deal with target at one point um they do have a pretty good base um but i believe there is exclusivity agreements um and and you know cecil'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 firm and sezzle uh sezzle's like monthly active users they they have a stricter definition

of what uh a user is as opposed to the other bnpls but it's much smaller um 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 clarinet says we have x amount and sezzle has one-fifth of that um you know i think merchants may tend to lead to the lean towards the higher user base 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 sizzle yeah so that that's exactly what it is so the merchant doesn't even know you're using sizzle right so they they issue you

a digital visa card um that is tied to your sizzle account bmpl so can be used anywhere you pay a subscription um to get access to that and they do have another product called sizzle on demand which is similar it essentially allows you to go up to the counter say i want to buy this using uh 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 a provider? 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 a resurgence with some of these companies growing and now getting profitability, Sezzle included. But how has 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. If you're a regular listener to Chitchat Stocks, then you've probably heard us talk about interactive brokers. Here are three reasons why

we think Interactive Brokers is better than any other brokerage platform. Number one, they've got it all. Stocks, bonds, ETFs, options, crypto, you name it. 170 markets, 36 countries, 28 currencies. Number two, they've got best in class pricing. They have zero commissions on US listed stocks and ETFs and offer margin rates up to 54% lower than the industry. Number three, you can ditch the separate high yield cash account. Interactive Brokers offers up to 3.14% interest on instantly available cash held in your investment account head on over to ibkr.com rate subject to change margin involves risk restrictions apply interactive brokers is a member of sipc yeah so bmpl has grown you know as of like 2023 there was like uh 45 billion and and originations

um and in like 2019 it was 3 billion so and expectations for this year are to be close to 600 billion um users have almost tripled in that time period and um 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 uh by 2030 um so that's like a 10 growth kegger it's so it was very rapid the last few years it is starting to slow down but it's still maintaining like a 10 growth kegger um and there's a lot of room to grow i think like 75 of americans use credit cards but it's still only like 15% of Americans use BNPL. Up until I became a, 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 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 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 take on BNPL overall, but I don't want to jump any questions. If you got something else you want to go down. No, let's do it. Personal experience. What do you think? 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 um 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. You know, I do it for travel rewards, but and for like fraud protection and all that I paid 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 um 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. Um, so in my opinion, uh, the, the whole sentiment is kind of skewed a little bit and people are just used to what they're used to. Um, and you know, when anything new shows up and when those crazy kids are using something that, uh, that they're not familiar with, it automatically gets a negative sentiment. 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 yeah you don't make a payment they cut off they don't say you know let's let's up those limits now's the time to to really up the limits

yeah pay us 25 minimum payment and you're good yeah yeah i think it's a good i think you're right and i agree um 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 um 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 uh 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 yeah so um their income statement their top line revenue is growing at like 70 percent um they have 60 percent gross margins a little higher um their net income margins are like 28 29 percent um

they're they're a free cash flow positive that also stands out against a lot of the other um bnpls um which is a nice little um position to be in because they can self-fund a lot of the growth uh they have like 33 percent uh adjusted ebitda margins um and you know just looking at their net income, right? I think Affirm is negative and Klarna is about half of what Sezzle is. It might be flipped, but that's the reality. And so the way Sezzle grows and grows their revenues, it starts at 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 11, 12 percent current take rate. And then what what comes out of that

primarily, 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 uh 3.1 or 3.2 percent which was a little spike and was uh probably responsible for a little of the drop in the stock price but pulling um that out you know so for every ten dollars they take they're paying uh three dollars three some odd dollars in provisions plus additional costs and they end up with a 60 percent gross margin um 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 a

a three percent and 30 cents or something like that um bmpls typically take double that but they assume the risk also so um they're paying the merchants so merchants are willing to pay a little bit more sacrifice some margins um less exposure and they get the cash right away so and they increase customers so as their merchant base grows um they increase transactions increase fees that way um so their marketing spend they're on the uh timberwolves jerseys nowadays you might notice looks pretty good but um so yeah they're marketing to new customers and what but their primary driver of growth like revenue grew at like 60 i think um and customers grew at like 12 so this is kind of the differentiator um 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. um 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 cash back rewards um you can participate in like uh games that probably advertise to you that give you sezzle bucks back um and what they're finding is that you know subscribers are spending

um using their the product like 10 times as much as somebody who is just doing the paying for a checkout um so that's their big big growth right now now i want to 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, it's all buy now, pay later. But 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 yeah so um 2030 looking back i think sezzle continues its transition um from more so here's the way i look at says a little bit it's more than just like uh paying for a 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 in in 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 um 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 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 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, BNPL 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 become exposed to it and the more that the conversation, like my point, becomes normalized, the more opportunity

I think they have for growth. All right, folks, before we move on, let's talk about our home for investment research, Fiscal.ai. Fiscal.ai is a complete stock research platform for fundamental investors we use it every single day here at chit chat stocks it has everything you need to research individual companies from 20 years of financial data to company specific segments and kpis earnings call transcripts morningstar reports and insider ownership data and much much more and they just lowered the price of their highest tier by 60 if you want a complete enterprise grade financial data terminal check out fiscal ai if you use our link fiscal.ai slash chit chat you will automatically get two weeks of Fiscal Pro for free, no card required. And if you want to

upgrade, our link will get you 15% off any paid plan. Again, that's fiscal.ai.com. The link will be in the show notes. All right, listeners, I want to take this time to remind you about the Emerging Moats Stock Research Service, a newsletter that will produce a stock research report every four weeks, 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. You mentioned that you tried it out

mm-hmm because you were more interested as an investor what was the experience like was it kind of everything you were expecting any anything to know yeah it was actually cooler than i expected um so i didn't become a subscriber i just did a standard paying for just to test it out but the app is actually uh much more than i expected it's a 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 uh 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 um you get all these pop-ups so the same thing happens in sezzle so when you open the app it's like featured products um 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 uh super easy to use i was impressed is that advertising revenue for them as well or are they just making money on the back end no i think right now it's making money on the back end makes sense uh all right unless brett maybe you have any more

questions on the financial profile i'd love to talk valuation um what do you 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 two billion roughly 2.6 billion dollar market cap how much do you think they could earn yeah talk talk through any thoughts on the valuation yep so right now i think that brings it to like a 14 or 15 forward pe um but you know eps is almost doubling over the last year um it's got like a peg of 0.6 so it's extremely fast growing i think they guided for next year um for a 29 percent uh year over

year for eps um which is growth that i'm happy with you know it's toning down a little bit um because they were growing so rapidly but that's to be except uh 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 um subscribers as much as they wanted to so there was a little bit of of spike and gmv and stuff this year as they were focused on the on-demand product um but you know sezzle has shown right if they can keep up 25 29 growth and the reality is they increased uh 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 um and

every single quarter for the last year they've raised that guidance in as as recently as last quarter so um you know that's kind of the expect not expectation but that's the stuff i like to see going forward um 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 um 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 um revenue spike as a result of q4 spending um but yeah i mean i love the ceo their roe is like a hundred percent um you know they're

extremely focused on profitable growth they uh 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 um you're still talking 15 returns as a base level with no no multiple expansion um and with like a slight expansion you can get up to 20 25 returns easy so from in my opinion um 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 um you know that they can experience a decent rewrite up and be a potential multi-bagger Sure. 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, pretty low share-based compensation, just 2% of revenue. So that forward PE is a 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. 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 going to buy it back. You know, he's 44 percent invested in the company.

It's his prime net worth has never sold a share. um you know they've been growing at crazy rates uh you know i'm not i'm not um having unrealistic expectations that think you know we're going to grow 100 70 year over year every year um 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 um 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 um but i think as uh younger people get more introduced to credit um that they got a long runway ahead of them okay let's talk about risks to the business we had some questions from twitter and clearly when they're lending business a lot of the i think

all of them are around things including late fees uh 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 yeah so um recession for sure is the primary risk. You know, 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 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 um 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 um 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 dollars um so they have the ability to tighten up very fast right as soon as someone doesn't pay um 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 is, 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 um 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 uh bmpl

and cecil 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 uh 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 uh pause spending it might not result in like heavy heavy losses but it would result in less revenue um and less gmv and take rate um 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 um you know you never know what's going to come up like the 10 credit card cap so regulations are always a risk 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. 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 50% of our lowest credit score consumers are going to be dropped from credit and um for better or worse america lives on credit right um so the the place to turn is the npl and it's got and it's got zero percent

interest it's not under the scrutiny that's um 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 um it'd be extremely beneficial for Sizzle and BNPL in general. Okay. I think we're kind of hitting our last couple of questions here. What would you say is one thing investors get wrong about Sizzle? I will personally admit the name was a bit of a deterrent for me, but that's kind of besides the point. Yeah. So let me loop back real quick. You The reality is, is that's part of credit business. That's part of PNPL 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 uh i don't hate conservative provisions as much as some people do uh sizzle 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, they're short-term loans, they're low-value loans, they're $150, 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 um report on sizzle to credit voluntarily but either way uh you can't just true and screw right sizzle 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 um cecil has like a 15 percent recovery rate um so they often do get a chunk

of the money back um 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 um and uh 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. 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. Yep. So you can find me on, you know, my main platform is Substack. Just search Manu Invests or Fundamentally Sound.

It's manuinvests.substack.com. Tons of free content, more content for premium subscribers. I'm also pretty active on X at Manu Invests. All right. Thank you, Liz, 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 guests 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.