The On-Demand Product And WebBank Partnership Will Drive Future Customer Engagement In BNPL Industry

Key Takeaways

• Sezzle's innovative banking partnership and On-Demand product are set to drive customer engagement and revenue growth through enhanced margins.
  
• Strategic focus on user engagement and optimized underwriting processes aims to boost consumer loyalty and profitability, supporting promising revenue and income growth.
  
• High competition, regulatory changes, and shifting consumer preferences pose challenges to Sezzle's market share, profitability, and financial stability.

Catalysts

Operates as a technology-enabled payments company primarily in the United States and Canada.

• Sezzle anticipates double-digit revenue growth and a 55% increase in pretax net income for 2025, driven by continued sector growth and outperformance in the BNPL industry. This is expected to enhance revenue and earnings.
  
• The introduction of the On-Demand product, backed by a new banking partnership with WebBank, is likely to increase customer activation and engagement, contributing to revenue growth and improved net margins.
  
• Sezzle's strategic focus on enhancing shopper engagement through new app features, such as couponing, could lead to higher consumer retention and loyalty, eventually boosting revenue and net margins.
  
• Sezzle's expanding user base, including 707,000 MODS with a 130% year-over-year increase, suggests promising future top-line growth as more consumers engage with the platform, potentially leading to enhanced earnings.
  
• The company's emphasis on optimizing underwriting processes and opening the funnel to more consumers is designed to balance growth with profitability, impacting both net income and earnings positively.

Sezzle Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sezzle's revenue will grow by 22.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 29.0% today to 25.2% in 3 years time.
• Analysts expect earnings to reach $124.3 million (and earnings per share of $1.54) by about April 2028, up from $78.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, up from 17.8x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.0x.
• Analysts expect the number of shares outstanding to decline by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Sezzle Future Earnings Per Share Growth

Risks

• High competition in the BNPL space from established players with larger equity bases could constrain Sezzle's market share growth and revenue expansion.
  
• Concerns about increasing principal loss rates as Sezzle expands to newer user groups could impact net margins and overall financial stability.
  
• Heavy reliance on continual product innovation, such as the On-Demand service, may strain resources and affect profitability if new products do not resonate with consumers as expected.
  
• Potential regulatory changes impacting the BNPL industry could impose constraints on Sezzle’s operations and limit revenue streams.
  
• Economic downturns or shifts in consumer preferences away from BNPL could lead to stagnant or decreased transaction volumes, negatively impacting earnings.

Valuation

• The analysts have a consensus price target of $61.5 for Sezzle based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $494.2 million, earnings will come to $124.3 million, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 7.0%.
• Given the current share price of $41.26, the analyst price target of $61.5 is 32.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.