Sezzle's Strong 2025 Results and Raised Guidance Fail to Alleviate Core Credit and Valuation Risks

What happened

Sezzle reported robust Q4 and full-year 2025 performance, with GMV reaching $1.2 billion and revenue growing 66.1% annually, alongside net income per share increasing 72.9% in the quarter. The DeepValue master report cautions that Sezzle's high valuation at 27x trailing EPS assumes sustained 60%+ growth and low-30s EBITDA margins, which are vulnerable to credit losses and fee dependence. Management raised FY2026 adjusted EPS guidance to $4.70 and introduced revenue growth targets of 25-30%, signaling confidence but also a notable deceleration from prior hyper-growth levels. Despite the positive earnings, underlying risks such as rising provision for credit losses, regulatory threats to consumer fees, and aggressive buybacks without leverage guardrails remain unaddressed. Investors should scrutinize these results against a backdrop of elevated expectations and potential downside from credit or policy shocks.

Implication

The raised guidance suggests management's optimism but implies growth moderation that could disappoint momentum investors and trigger multiple compression if execution falters. Credit metrics, while currently within targets, are prone to deterioration in an economic downturn, threatening profitability given Sezzle's reliance on delinquency and consumer fees. Regulatory overhang on BNPL fee structures poses a material tail risk that could cap revenue growth and compress margins unexpectedly. Aggressive capital allocation via the $100 million buyback, if deployed amid weakening fundamentals, may signal misaligned stewardship and reduce financial flexibility. Ultimately, the operational strength is overshadowed by asymmetric downside risks, making the stock unattractive at current valuations without clearer evidence of durable unit economics.

Thesis delta

The new results confirm Sezzle's operational momentum but do not shift the core thesis of elevated risks versus limited upside. The guidance raise may temporarily bolster sentiment, but it also highlights growth deceleration that aligns with the bear case of normalization. Thus, the investment call remains a potential sell, as valuation and credit concerns persist unchanged.