Executive Summary / Key Takeaways

• Sezzle has demonstrated remarkable financial momentum, achieving 12 consecutive quarters of year-over-year improvement in revenue and operating income, culminating in a highly profitable Q1 2025 with a 34.5% net income margin.
• The strategic partnership with WebBank is a game-changer, enabling a unified U.S. product construct, simplifying compliance, and unlocking new growth vectors like the high-activation On-Demand product, which is exceeding initial expectations.
• Proprietary technology, including advanced machine learning models for underwriting and fraud prevention, is a core competitive advantage, allowing Sezzle to manage credit risk effectively, expand its consumer funnel profitably, and drive operational efficiency.
• Despite competing with larger, better-capitalized players like Affirm (AFRM), Block (SQ) (Afterpay), and PayPal (PYPL), Sezzle is gaining market share through a focused strategy on consumer empowerment, product innovation (subscriptions, On-Demand, shopping features), and efficient operations, positioning it as a "Moneyball" success story in the BNPL sector.
• Management's significant upward revision to 2025 guidance, projecting 60-65% revenue growth and $120 million in net income ($3.25 EPS), underscores confidence in the sustainability of recent performance drivers and the impact of strategic initiatives.

The Ascent of a Purpose-Driven FinTech

Sezzle Inc., launched in 2017, has carved out a distinct identity in the burgeoning Buy Now, Pay Later (BNPL) landscape. Positioned as a purpose-driven payments company, its mission is centered on financially empowering the next generation by offering a flexible alternative to traditional credit. At its core, the Sezzle Platform allows consumers to purchase goods and services immediately and pay for them over time through interest-free installments, typically structured as Pay-in-Four. This model stands in stark contrast to revolving credit, promoting responsible repayment by restricting future purchases if a consumer is not current on their payments – a key differentiator management highlights.

The company's journey has been one of continuous evolution and strategic adaptation. Starting with direct merchant integrations, Sezzle expanded its offerings to enhance consumer value and increase lifetime value. Key milestones include the introduction of Sezzle Up in 2021, a feature allowing users to build credit history, and the launch of paid subscription services, Sezzle Premium (2022) and Sezzle Anywhere (June 2023). These subscriptions broadened the platform's utility, enabling usage at a wider array of merchants, including large, non-integrated ones and virtually any merchant accepting Visa (V). This product evolution laid the groundwork for increased consumer engagement and monetization, moving beyond a purely merchant-funded model.

Technology as the Bedrock of Profitability and Growth

Central to Sezzle's ability to thrive in a competitive market is its proprietary technology platform, particularly its sophisticated risk management and underwriting systems. The company employs a team of engineers and risk specialists who oversee proprietary systems designed to identify fraudulent transactions, assess consumer credit risk, assign spending limits, and manage collections.

The core of this capability lies in Sezzle's machine learning models, collectively referred to as the "Prophet Score." This internal, proprietary scoring system evaluates credit risk based on a variety of internal risk indicators and consumer attributes predictive of repayment ability and willingness. The Prophet Score is regularly evaluated and updated, with the latest model update occurring in October 2023. The system includes specialized models like the "Baby Prophet" for new consumer sign-ups, which management asserts is a better predictor of consumer delinquencies than traditional FICO scores, and the "False Prophet" for fraud detection. The effectiveness of these models is validated by the appropriately sloped charge-off performance observed across consumer risk deciles.

This technological edge translates into tangible, quantifiable benefits for Sezzle's business model. It enables predominantly accurate, real-time decisions on consumer transaction approvals, which is critical given the point-of-sale nature of BNPL. By effectively managing credit risk, Sezzle can confidently expand its consumer funnel and increase approval rates for both new and repeat customers, even while targeting profitable top-line growth. The ability to optimize repayment capacity decisions directly influences profitability and the provision for credit losses.

Beyond risk management, Sezzle's technology powers its expanding product suite and enhances the consumer experience. The in-app Product Marketplace, for instance, leverages AI-driven technology for product categorization, search refinement, and personalized recommendations, contributing to significant engagement (orders averaged 39% month-over-month growth in 2024). New features like price comparison tools and auto-couponing, launched in Q1 2025, aim to make shopping smarter and more rewarding, driving retention and loyalty. The beta launch of Pay-in-5, offering an extended installment plan, is another example of technology enabling product innovation based on consumer demand. While specific quantitative targets for all new tech features aren't detailed, the strategic intent is clear: leverage technology to enhance the value proposition, increase consumer engagement, and ultimately drive higher consumer lifetime values, supporting the "Moneyball" approach of doing more with less.

Competing Against Giants: The "Moneyball" Approach

Sezzle operates in a highly competitive financial services sector, facing off against well-established players and other rapidly growing fintechs. Key competitors offering BNPL services include Affirm Holdings, Block Inc. through its Afterpay subsidiary, and PayPal Holdings with its Pay in 4 offering. These competitors often boast significantly larger scale, greater access to capital, and broader existing ecosystems.

Despite this formidable competitive landscape, Sezzle believes it is not only competing but thriving and gaining market share. Management likens Sezzle's approach to "Moneyball," emphasizing innovation and efficient operations to outperform larger, better-capitalized peers who have raised significantly more equity capital.

Quantitatively, Sezzle's recent financial performance highlights its competitive strength, particularly in profitability. In Q1 2025, Sezzle reported a net income margin of 34.5% and an adjusted EBITDA margin of 49%. Comparing this to available TTM data for competitors, Affirm has recently reported negative net margins, while Block had a TTM net margin of 12% and PayPal had a TTM net margin of 13%. This suggests Sezzle is currently significantly more profitable on a net basis than its larger BNPL-focused and diversified payments rivals. Sezzle's TTM Gross Profit Margin of 82.96% also appears robust compared to Affirm's 64%, Block's 37%, and PayPal's 46% (based on available TTM data), indicating strong unit economics before operating expenses.

Sezzle's competitive advantages stem from its focused strategy and technological execution. Its proprietary underwriting technology allows for profitable growth by managing credit risk effectively, even as it expands its user base. The company's emphasis on consumer empowerment and a transparent, generally fee-free core product (for on-time payments) resonates with its target demographic, fostering loyalty. The recent WebBank partnership is a strategic move to level the playing field, unifying the U.S. product construct and enabling the "On-Demand" product, which makes Sezzle more competitive for enterprise merchants by allowing some costs to be passed to the consumer.

However, Sezzle faces vulnerabilities due to its smaller scale. This can lead to higher customer acquisition costs compared to competitors leveraging vast existing user bases (like PayPal or Block's Square ecosystem). While Sezzle's technology is efficient, larger competitors may have greater resources for rapid innovation or more robust infrastructure for areas like transaction security. Sezzle's strategy to counter this involves continuous product enhancement, focusing on high-ROI marketing spend (targeting a six-month payback), and leveraging partnerships like WebBank to expand reach and activation. The company is also pushing into new BNPL categories like grocery bills, seeking growth in less saturated areas.

Customer and supplier dynamics also play a role. Sezzle's ability to attract and retain consumers through its product features and mission is key to driving volume. Its reliance on its originating bank partner (WebBank) for a substantial majority of U.S. loan originations is a critical relationship, as is maintaining relationships with merchants and payment processors like Visa. The Delayed Settlement Incentive Program (DSIP) with merchants provides a funding source but also introduces a liability with potential liquidity implications if merchants demand payments rapidly, though the company reserves the right to impose limits.

Overall, Sezzle's competitive positioning is that of an agile, highly efficient player gaining ground in a growing market. It leverages technology and a clear consumer value proposition to achieve superior profitability compared to many peers, even while lacking their scale. The success of recent initiatives like the WebBank partnership and On-Demand product will be crucial in determining its ability to continue capturing market share and challenging larger rivals.

Financial Momentum and Capital Strength

Sezzle's financial performance has undergone a significant transformation since late 2022, marked by a consistent trend of improvement. This culminated in a standout first quarter of 2025. Total revenue surged to $104.9 million for the three months ended March 31, 2025, a remarkable 123.3% increase compared to $47.0 million in the prior-year period. This growth was fueled by a 64.1% rise in Gross Merchandise Volume (GMV) to $808.7 million and a significant increase in revenue yield, reaching 13% of GMV in Q1 2025. The increase in revenue yield was attributed to growth in subscription products (+59.7% YoY), the successful launch and performance of the On-Demand product, and the standardization of consumer fees enabled by the WebBank partnership. Transaction income grew 118.5% YoY to $58.2 million, driven by higher GMV and increased consumer fees ($34.7 million in Q1 2025 vs $7.4 million in Q1 2024). Income from other sources, including late payment fees ($16.8 million in Q1 2025 vs $2.7 million in Q1 2024), saw a dramatic 310% increase to $23.3 million.

This top-line expansion flowed powerfully to the bottom line. Net income for Q1 2025 reached $36.2 million, a substantial increase from $8.0 million in Q1 2024. This translated to a net income margin of 34.5%. Adjusted EBITDA margin also reached a robust 49%. While operating expenses increased year-over-year across most categories (Personnel +36.5%, Transaction Expense +29.9%, Third-Party Tech/Data +56.4%, Marketing +716.2%, G&A +31.6%, Provision for Credit Losses +149%), these increases were outpaced by revenue growth, demonstrating operating leverage. The significant jump in marketing spend reflects a strategic decision to promote user acquisition, supported by improved unit economics. The provision for credit losses increased due to higher GMV and changes in underwriting to support growth, but management is confident that enhanced margins will offset this. Net interest expense decreased by 28.6% year-over-year, benefiting from a lower interest rate on the new credit facility despite higher outstanding borrowings. The increase in income tax expense reflects the company becoming a full taxpayer.

Sezzle's liquidity position is strong and improving. As of March 31, 2025, the company held $88.9 million in cash and cash equivalents and $32.0 million in restricted cash, compared to $73.2 million and $25.1 million, respectively, at December 31, 2024. Working capital stood at $164.3 million, up from $151.9 million. The company's primary funding source is a secured revolving line of credit, which had an outstanding balance of $70.8 million as of March 31, 2025, down from $105.0 million at December 31, 2024. Unused borrowing capacity increased to $52.2 million from $39.0 million. Net cash provided from operating activities was a strong $58.8 million in Q1 2025, up from $38.6 million in Q1 2024, driven by increased profitability and favorable changes in operating assets and liabilities, including a decrease in notes receivable balances from the prior quarter's holiday peak.

The company has also actively returned capital to shareholders, completing a $15 million stock buyback in Q3 2024 and announcing a new $50 million stock repurchase program effective April 2025. A 6-for-1 stock split was also executed in March 2025 to enhance stock accessibility.

Outlook and Key Considerations

Management's outlook for 2025 is highly optimistic, underpinned by the strong Q1 performance and the anticipated continued impact of strategic initiatives. The company significantly raised its full-year 2025 guidance, now projecting total revenue growth of 60% to 65% (up from 20-30%), net income of $120 million (up from $80.4 million), and earnings per share (EPS) of $3.25 (up from a split-adjusted $2.21).

This revised guidance is based on several key assumptions and tailwinds. Management cited continued strong demand for Sezzle's products, better-than-expected credit performance in Q1 2025, and the successful interplay between subscription and On-Demand products exceeding initial expectations. They anticipate that subscribers will continue to engage frequently, while non-subscribers will increasingly utilize the On-Demand offering, providing a strong tailwind for top-line growth.

A key assumption in the financial model is that the provision for credit losses (PLR) will trend higher over the remaining quarters of 2025, settling within a guided range of 2.5% to 3% of GMV. This expected increase is a deliberate outcome of the strategy to prioritize growth by opening the consumer funnel, particularly to newer user groups who typically have higher loss rates. Management is confident that the anticipated revenue growth and enhanced margins will more than offset this higher credit cost.

Another significant factor for the 2025 outlook is that the company expects to provision for a full tax burden. This follows the release of the deferred tax asset valuation allowance in 2024, which boosted prior-year net income figures. Despite this tax headwind, the guidance implies pre-tax net income growth in excess of 55%, demonstrating the underlying operational profitability.

The strategic focus for the remainder of 2025 includes maximizing the On-Demand launch, improving shopper engagement through new in-app features (like price comparison and auto-couponing), and continuing to integrate with enterprise-level merchants. While the full impact of some newer product enhancements like Pay-in-5 and auto-couponing may not be realized until later in the year (Q3 at the earliest), they are expected to contribute to long-term retention and loyalty.

However, investors should remain mindful of potential risks. The BNPL industry faces ongoing scrutiny from regulators, which could lead to new rules impacting business models or costs. Operating in a highly competitive market means Sezzle must continue to innovate and execute efficiently to maintain its growth trajectory and competitive edge. Macroeconomic conditions can influence consumer spending and credit quality, potentially impacting GMV and credit losses. The reliance on the originating bank partner and access to funding facilities are also critical factors. While Sezzle's proprietary technology is a strength, maintaining its effectiveness and staying ahead of competitors' technological advancements requires continuous investment. The company believes its existing liquidity sources are sufficient for the next twelve months and beyond.

Conclusion

Sezzle has transformed itself into a profitable and rapidly growing player in the dynamic Buy Now, Pay Later market. Its recent financial performance, particularly the strong Q1 2025 results, underscores the effectiveness of its strategic shift towards enhanced monetization and efficient operations. The WebBank partnership has been a pivotal development, enabling product innovation and simplifying the operating model, while proprietary technology provides a crucial foundation for managing risk and driving consumer engagement.

Despite competing with larger rivals, Sezzle's "Moneyball" approach, focusing on profitable growth, superior unit economics, and a clear value proposition for the next generation of consumers, appears to be yielding results. The significant upward revision to 2025 guidance reflects management's confidence in the sustainability of these trends and the potential for continued market share gains. While risks inherent to the fintech and lending sectors remain, Sezzle's demonstrated ability to execute, coupled with its strategic focus on product innovation and capital efficiency, positions it as a compelling consideration for investors seeking exposure to the evolving payments landscape. The key for Sezzle will be to successfully leverage its technological advantages and strategic partnerships to continue scaling profitably in the face of intense competition.