Few stocks in the market can match the price performance of buy-now-pay-later (BNPL) fintech company Sezzle (SEZL -1.96%) over the past couple of years. In fact, Sezzle's stock performed so well that the company decided to execute a 6-for-1 stock split in March, less than two years after going public.
Unfortunately, the stock hasn't gone straight up. Sezzle plunged by more than 30% after its recent second-quarter earnings report and now trades for less than half of its peak.
Despite the recent plunge, Sezzle's business is doing quite well. In the second quarter, it beat analyst expectations on both the top and bottom lines. Although the company's forward guidance was a little less than investors wanted (which is why the stock fell), management still expects 60%-65% year-over-year revenue growth.
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It's worth noting that Sezzle went public in the United States at a split-adjusted price of $3.78 in August 2023. So even after the recent pullback, the stock is still up by more than 2,200% in about two years. But even with this incredible performance in mind, could Sezzle still be worth buying?
A massive market opportunity
Sezzle's growth has been incredible. After all, I just referred to an expected 60%-65% year-over-year growth rate as a disappointment. In the second quarter, Sezzle's revenue grew by 76%, and it did so while generating excellent profitability. The company produced a stellar 28% net margin, which isn't common to see with such rapid growth.
But this could just be the starting point. Buy-now-pay-later and point-of-sale financing makes up just 2% of total commerce transaction value in the United States. This is still a massive market, making up $257 billion of transactions in 2024. And Sezzle is a relatively small player, with about $927 million in gross merchandise volume (GMV) in the latest quarter. That means Sezzle's annualized GMV is just 1.4% of the overall BNPL market.
Think about that for a second. Sezzle has just 1.4% of a growing payments market that represents just 2% of total U.S. commerce. To say that there's a lot of growth potential here is a massive understatement.
Sezzle is doing an excellent job of engaging with its customers and driving payment frequency, and it's also rolling out some unique features that appeal to the crucial younger generations. One example is credit scoring optionality, which gives Sezzle borrowers the choice of whether their BNPL loan activity is reported to the major credit bureaus.
An incredibly profitable business with smart capital allocation
As mentioned, Sezzle is unusually profitable for a business that is growing revenue at a rate of more than 70% year over year. Adjusted net income grew 92% in the most recent quarter compared to the same period in 2024, and margins could get even stronger as it grows. Sezzle is on track to produce at least $170 million in adjusted EBITDA for the full year, and this could get much larger in the next few years.
Also, because of its excellent profitability, Sezzle is starting to prioritize capital return to shareholders, which is somewhat rare for such a fast-growing company. Along with its stock split, Sezzle's board authorized a $50 million share repurchase plan.
Is Sezzle a good stock to buy right now?
One thing is for certain. Sezzle is likely to be a volatile stock for the foreseeable future, even if things are going well.
After the recent earnings-related drop, Sezzle trades for more than 50% below its 52-week high, and at a multiple of less than 24 times forward earnings expectations. If it can keep a rapid growth trajectory and continue to take market share in the BNPL space, this could end up being a bargain. But there's a lot that needs to go well, and the stock is by no means a sure thing, so invest with that in mind.
