Sezzle's Strong Growth Masks Deepening Credit and Regulatory Risks

What happened

Sezzle's Q3 2025 performance, highlighted in a Seeking Alpha article, shows robust growth with 67% YoY revenue increase and 72.7% net income growth, alongside improved EBITDA margins and the highest take rate among peers. However, the DeepValue report reveals that credit loss provisions have risen to 3.1% of GMV, exceeding management's guided range of 2.5-2.75% and signaling potential underwriting stress. The company's profitability is increasingly reliant on consumer fees, such as late fees, which grew over 500% YoY in early 2025, exposing it to regulatory scrutiny and possible fee caps. Despite a new $100 million buyback authorization reflecting management confidence, the report criticizes the lack of disclosed leverage guardrails, raising capital allocation risks. Overall, Sezzle's surface-level strength is undermined by escalating credit costs and regulatory vulnerabilities that could impair its high valuation.

Implication

The bullish narrative around Sezzle's growth overlooks critical risks: credit loss provisions are already above guidance, indicating potential deterioration in loan quality that could erode margins. Heavy dependence on consumer fees, which are under regulatory scrutiny, threatens a significant portion of revenue if caps are imposed. Aggressive buybacks without clear financial policies may misallocate capital during periods of rising credit stress. Valuation multiples near 27x EPS and 33x EV/EBITDA leave little room for error, making the stock vulnerable to multiple compression if growth slows or losses spike. Investors should monitor credit metrics and regulatory developments closely, considering trimming positions or waiting for a price reset to the $60 range for better risk-adjusted entry.

Thesis delta

The Seeking Alpha article reinforces Sezzle's strong operational metrics but does not alter the core investment thesis, which already incorporates high growth while flagging credit and regulatory risks as primary concerns. No shift is warranted; the thesis remains that current prices embed optimistic assumptions vulnerable to downside from credit losses exceeding 3% of GMV or regulatory action on fees.