The founder is part of the buy now, pay later sector which has taken hits in the stock market with an expert describing the situation as “horrible”.
The founder of a buy-it-now and pay-later provider called Sezzle lost most of his $800 million fortune after the company’s stock bombed, continuing a nightmarish run for the sector.
Last June, US founder Charlie Youakim boomed shares of Sezzle that were worth $9.20, but they have crashed 96% this week, plunging to just 40 cents.
It saw all but $35.4 million wiped from Mr Youakim’s fortune after he boasted last year that Sezzle was on a “tremendous growth trajectory”. The company had raised $79.1 million in capital in 2020.
Sezzle is set to merge with Australian player Buy Now, Pay Later (BNPL) Zip Co. The deal is expected to close by the third quarter of this year, but Zip has also taken a beating in the stock market.
Shares of Zip have plunged over the past 12 months and are currently trading at 63c, down from $14.53 in May last year.
Provider BNPL previously had a market capitalization of around $6 billion – which was more than retailer JB Hi-Fi – but it has since dropped to around $600 milliona staggering 87% drop in the share price compared to 2021.
Sezzle’s future hinges on acquiring Zip, according to East 72 hedge fund founder Andrew Brown.
“I don’t see how (Sezzle is going to) raise capital, other than under the most difficult conditions,” Mr Brown told the Australian Financial Review if the deal was not closed.
“The fundamental problem with both companies is that the bad debt situation is just awful. The situation has worsened considerably since the cessation of stimulus payments in the United States and Australia. quarterly and half-yearly figures.
Experts have already predicted potential “carnage” for the sector buy now, pay later, as suppliers burn cash, bad debts increase and customers forgo using the service – a model they say is not sustainable.
More pain is also heading for Australia’s BNPL providers with Financial Services Minister Stephen Jones indicating on Thursday that the sector would be regulated in the same way as credit products by mid-2022, a change that financial groups consumer protection have been campaign on.
Zip had valued Sezzle at $491 million when it announced the acquisition in February, based on a 22% premium to its then $1.78 share price.
In April, Zip said its March quarter revenue rose 39% to $159.2 million on transaction volumes up 27% to $2.1 billion, while Sezzle said its revenue rose 6.1% to $38.8 million.
Zip said the combined companies could be cash flow positive by 2024.
Mr. Brown added that Zip’s marketing costs amounted to $150 million per year on a cost basis of $500 million.
“If you cut back on marketing a bit, I still think Zip needs underlying sales, assuming bad debts go down about half, about $15 billion to $16 billion to break even. “, did he declare.
“They’re about nine and a little now, maybe a little more, and that’s assuming a pretty decent improvement in bad debt metrics and also a reduction in marketing.”
If the provider BNPL’s merger agreement were to fall through, Sezzle could owe Zip a termination fee of $7.8 million. On the other hand, Zip may owe Sezzle a termination fee of $31.4 million.
Overall, Australia’s BNPL sector lost $1.05 billion in 2021, which has worried investors and seen share prices plunge this year.
The first results of the Australian company since its takeover by the American company Block have shown this
posted a net loss of $345.5 million in the six months ending December 31, 2021.
This is a considerable drop from its previous half-year results, where it lost $79.2 million in the first half of 2021. In total, this means the company’s losses increased by 336%.
Last month, Afterpay announced that it was upgrade to even more services such as restaurants, butchers and hairdressers as it targets ‘brick and mortar’ retailers, but consumer advocates have warned its latest offering is ‘dangerous’.
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