Hindenburg Research triggers Sezzle selloff with short report
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The news: Investment research firm Hindenburg Research has published a short report on Sezzle predicting the buy now, pay later company will collapse under the weight of mounting credit losses and accusing insiders of using margin loans to extract profits.
The numbers: The Nasdaq-listed stock fell 23% to USD242.17 ($388.99) following the report's publication. However, the stock has rocketed 1,525.3% over the past 12 months.
The Minneapolis-based company was previously listed on the ASX but delisted in January 2024. It debuted on the Nasdaq in August 2023.
Sezzle has USD95 million outstanding on its line of credit, subject to an effective 12.65% interest rate according to the company's filings.
At the same time, Hindenburg highlighted that the company's provision for credit losses grew by 130% year on year while its lending only increased by 6%.
Citing Sezzle's own disclosures, Hindenburg said the platform has lost more than half of its active merchants since 2021, falling to 23,000. It meanwhile suggested the number could be lower still, having found just 6,776 merchants on its website.
It also pointed to a footnote in a Sezzle proxy statement showing its chair and chief executive had taken out a margin loan using $542 million worth of shares, or around 30% of the company, as collateral. Sezzle accused management of using the loan to "extract cash from their shares" without having to disclose share sales to the market.
The context: The short report comes after Sezzle had previously rallied more than 2,000% this year as a broad resurgence was made by buy now, pay later companies.
Sezzle was contacted for comment.
What they said: "As merchants and consumers gravitate toward platforms with stability, scale, larger user ecosystems and fewer consumer facing fees, we expect Sezzle’s business will continue to fade away. As Sezzle’s risky loans age, we expect credit losses will swallow the business," Hindenburg wrote in its report.
"While the company can attempt to hastily issue riskier credit to create the appearance of near-term growth, its model is simply not sustainable — and we think insiders rapidly exiting their stakes is an indication that they already know this."
The source: Hindenburg Research
