SEZL's Margin Expands: Can This Drive Profitability in the Long Run?

Sezzle SEZL has demonstrated a consistent margin expansion over the past few quarters, a trendthat clarifies its stance on prioritizing sustainable profitability. The key to this impressive trend lies in the company’s operating margin, which has climbed from 29.4% in the first quarter of 2024 to 47.6% in the recent reported quarter.

This is not an isolated event but a trend followed by the company over the past quarters, signaling effective top-line gains surpassing operating expenses.

This is evident from operating expenses as a percentage of total revenues declining to 52.4% in the first quarter of 2025 from 68.6% in the preceding quarter and 70.6% in the year-ago quarter. The WebBank partnership is certainly responsible for elevating SEZL’s operating leverage by simplifying funding and processing infrastructure.

The non-transaction-related operating expenses as a percentage of total revenues declined from 34.5% in the first quarter of 2024 to 27.4% in the fourth quarter of 2024, reaching a new low of 25.6% during the March quarter. This movement highlights SEZL’s effective cost management and efficient use of its infrastructure.

As the business increases its gross merchandise volume and enhances user engagement, evidenced by the rise in purchase frequency from 4.5 to 6.1 times, the additional costs for supporting this growth are relatively lower, leading to a higher net income margin. Barring the exceptional surge to 53.1% in the second quarter of 2024, net income margin in the March-end quarter stood at 34.5%, soaring 870 basis points from the preceding quarter and 1,750 bps from the year-ago quarter.

Management has been optimistic about its revenue growth and net income. In the first quarter of 2025, the expectation for 2025 top-line growth was ramped up to 60-65% from the previous quarter’s view of 25-30%. Similarly, net income witnessed an increase to $120 million from the preceding quarter’s view of $80.4 million. Considering the trajectory of the metrics and the positive outlook, Sezzle is well-positioned for continued and sustained profitability in the long run.

SEZL’s Price Performance, Valuation & Estimates

The stock has skyrocketed 260.8% in the past six months, significantly outperforming Global Blue Group GB and Mastercard MA, and the industry as a whole. The industry has gained 5.3%. Global Blue Group has declined 2.2%, while Mastercard has gained 8.6% for the same period.

6-Month Price Performance

From a valuation standpoint, SEZL trades at a forward price-to-earnings ratio of 44.61, above Global Blue Group’s 17.5, Mastercard’s 32.6 and the industry’s 169.27.

P/E - F12M

Sezzle has a Value Score of F.

The Zacks Consensus Estimate for SEZL’s earnings for 2025 is pegged at $3.26 per share, hinting at a 77.2% surge from the year-ago quarter.

SEZL currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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