The founder is part of the buy now, pay later industry, which has taken a beating in the stock market with an expert describing the situation as “horrific”.
The founder of a buy now, pay later provider called Sezzle has lost most of his $800 million fortune after the company’s stock was bombed, continuing an industry nightmare.
Last June, US founder Charlie Youakim experienced a boom in Sezzle’s stock worth $9.20, but this week they plunged 96 percent, falling to just 40c.
This wiped all but $35.4 million from Mr. Youakim’s fortune after boasting that Sezzle was on a “huge growth trajectory” last year. The company had raised $79.1 million in capital in 2020.
Sezzle is merging with Australian buy now, pay later (BNPL) player Zip Co and the deal is expected to be sealed in the third quarter of this year, but Zip has also taken a beating in the stock market.
Shares of Zip have plunged in the past 12 months and are currently trading at 63c, compared to $14.53 in May last year.
The BNPL provider previously had a market cap of around $6 billion – which was more than retailer JB Hi-Fi – but this has since plummeted to about $600 milliona staggering 87 percent drop in share price from 2021.
According to Andrew Brown, the founder of hedge fund East 72, Sezzle’s future hinges on the Zip acquisition.
“I don’t see how (Sezzle) is going to raise any capital, except on the most dire terms,” Mr Brown told the Australian Financial Review if the deal wasn’t closed.
“The fundamental problem with both companies is that the bad debt situation is just terrible. It has gotten considerably worse since stimulus payments in both the US and Australia stopped. You can see that quite clearly in the quarterly and half-year figures.”
Experts have previously predicted possibly “bloodbath” for the industry, buy now, pay later, as providers burn cash, bad debts rise and customers withdraw from using the service — a model they say is unsustainable.
More pain is also coming for Australian BNPL providers, with Financial Services Minister Stephen Jones hinting on Thursday that the sector would be regulated in the same way as credit products by mid-2022. campaign on†
Zip had valued Sezzle at $491 million when it announced the acquisition in February, based on a 22 percent premium to the then share price of $1.78.
In April, Zip said March sales were up 39 percent to $159.2 million, while transaction volumes were up 27 percent to $2.1 billion, while Sezzle said sales were up 6.1 percent to $38. 8 million.
Zip has claimed that the combined businesses could generate positive cash flow by 2024.
Mr. Brown added that Zip’s marketing costs are $150 million annually on a $500 million cost basis.
“If you scale back the marketing a bit, I still believe Zip needs underlying sales, assuming bad debt falls by about half, from about $15 billion to $16 billion to break even,” he said. he.
“They’re now about nine and a little bit more, maybe a little more, and that’s assuming a pretty decent improvement in bad debt numbers and also phasing out marketing.”
If the BNPL provider’s merger agreement were to fail, Sezzle may owe Zip a $7.8 million termination fee. On the other hand, Zip Sezzle may owe a $31.4 million termination fee.
Overall, the Australian BNPL sector lost a staggering $1.05 billion in 2021, worrying investors and causing stock prices to plummet this year.
The Australian company’s first results since its acquisition by US firm Block showed it
reported a net loss of $345.5 million for the six months ended December 31, 2021.
That’s a significant drop from its previous half-year results, where it lost $79.2 million in the first half of 2021. In total, this means that the company’s losses have increased by 336 percent.
Last month Afterpay announced that the move to even more services like restaurants, butchers, and hairdressers, as it targets “brick and mortar” stores, but consumer advocates have warned the latest offering is “dangerous.”
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