Sezzle Partners with Pagaya to Expand BNPL Operations, but Core Risks Remain

What happened

Sezzle announced a partnership with Pagaya to expand its BNPL operations, leveraging Pagaya's AI-driven credit technology to potentially underwrite more loans and drive growth. The news comes amid Sezzle's strong financial performance, with 60%+ revenue growth and high EBITDA margins, but the DeepValue report rates the stock a POTENTIAL SELL. The report flags elevated valuation (~27x P/E), rising credit costs, regulatory risks, and a business model increasingly reliant on consumer fees. The Pagaya partnership may provide operational leverage and expand merchant access, but it also introduces counterparty risk and could exacerbate dependence on fee-heavy revenue. Given the premium valuation, any disappointment in growth or credit could trigger multiple compression, making the risk/reward unfavorable at current levels.

Implication

The Pagaya partnership is a positive development that could support continued growth and potentially alleviate some underwriting concerns. However, it does not change the fundamental thesis: Sezzle trades at a high multiple with rising credit costs and regulatory overhang. Investors should monitor how the partnership impacts credit metrics (provision as % of GMV) and fee reliance. Given the POTENTIAL SELL rating, the risk/reward remains skewed to the downside; wait for a better entry or clearer evidence of durable, fee-light growth.

Thesis delta

The partnership with Pagaya shifts the narrative towards strategic expansion and technology-driven underwriting, which could support Sezzle's high-growth trajectory. However, it does not mitigate the core risks of credit deterioration, regulatory action on fees, or the sustainability of premium margins. The bull case now hinges on the partnership's ability to sustain growth without worsening credit metrics, while the bear case remains unchanged—any slip in execution or regulatory shift could lead to multiple compression.