Sezzle Made Real Money in BNPL, Now the Risk is Misplaying the Game
Sezzle (NASDAQ: SEZL) reported its fourth-quarter and fiscal year 2025 results with a rare signal in the "buy now, pay later" (BNPL) universe: robust profitability and, more importantly, operational leverage. In Q4 2025, it recorded revenues of $129.9 million (32.2% year-over-year) and a record GMV of $1.2 billion (35.3%). The quarter concluded with a GAAP net income of $42.7 million and an adjusted EBITDA margin of 44.9%. For the full year, the standout figure is a net income of $133.1 million with revenue growth of 66.1% and a net margin of 27.66%. All this, coupled with improved transaction costs at 37.6% of revenues for the year (35.7% in Q4) and a gross margin of 62.4%. Source: corporate statement.
My key takeaway isn’t to celebrate but to assess resilience. In financial markets, when a stock shifts from "narrative" to "cash flow," the risk dynamic changes: it’s no longer about whether it works, but rather about whether it can stretch into areas where regulatory and operational physics differ. Sezzle has also announced two strategic vectors: Sezzle Mobile (an unlimited wireless plan starting at $29.99/month, powered by AT&T's Gigs network) and the exploration of an ILC bank charter (Industrial Loan Company), intending to apply in the first half of 2026.
The underlying story is straightforward: Sezzle has demonstrated that BNPL can generate profits. Now, it’s tempted to use that engine to pull a heavier truck.
The Quarter Was Not “Good”: It Was a Validation of Structure
In BNPL, the line between healthy growth and drugged growth often comes down to who bears the true cost of credit and customer acquisition. This is why a high GMV alone proves nothing; it could be subsidized volume. What it does prove something is when the volume comes with margins.
In Q4 2025, Sezzle did more than grow: it showcased that its model is consistently generating cash flow. $42.7 million GAAP net income in one quarter on $129.9 million in revenues is not a statistical accident. For the year, $133.1 million in net income with a 27.66% net margin is a figure that would compel any investment committee to rewrite their memo.
The key point is the mechanics: relatively declining transaction costs (37.6% of revenues for the year; 35.7% in Q4) and gross margin of 62.4%. This suggests that as Sezzle scales, it is successfully managing to have the “cost to serve” grow more slowly than revenues. In portfolio terms, it’s like observing that the coverage cost declines while yield rises: it doesn’t eliminate risk, but it indicates a better-constructed position.
There are also signs of financial discipline. The company completed a $50 million share buyback and still has $100 million authorized. That, at the very least, signals that management believes liquidity is not being burned to sustain a house of cards. Concurrently, it expanded its credit line to $225 million, providing it with the firepower to either ramp up originations or support greater volume without straining the balance sheet.
In aggregate, the quarter validates structure: growing revenues, relative costs declining, and capital returning. That is the opposite of the VC manual of “grow first, lose later.”
The 2026 Guidance Raises the Bar and Tightens Scrutiny
Sezzle has raised its guidance for 2026 to EPS of 4.35–4.70 (adjusted EPS aiming for 4.70), with revenue growth of 25–30% and approximately $170 million in adjusted net income. The increase in guidance matters less as a number and more as a signal: management is betting that the momentum of efficiency continues.
But here comes the first point of serious risk: the comparable figures. B. Riley Securities has already flagged this by cutting its price target (from 111 to 76) while maintaining a “Buy” rating, pointing out that Sezzle will face tougher year-over-year comparisons in 2026 after the stimulus from previous initiatives like the Sezzle On-Demand partnership with WebBank and the Sezzle Premium/Sezzle Anywhere subscription programs, the impact of which would be more muted this year. TD Cowen also slightly cut its price target (from 83 to 82) with a “Hold” rating.
Translating this into risk language: when a company improves from a mix of extraordinary initiatives and optimization, the market starts demanding that the "new level" be repeatable without tricks. And that requires revenue growth of 25–30% to come from real demand, not temporary levers.
Furthermore, the market is already recognizing heightened volatility: the reported beta is 8.70 and the 12-month range goes from 24.86 to 186.74 per share. Such a beta functions as emotional leverage: at any sign of a slowdown, the price doesn’t adjust; it jumps. For a CFO or board, this data isn’t cosmetic; it affects the implicit cost of capital and the market’s tolerance for execution errors.
The high guidance is a reputational asset only if defended with quarterly execution. If not, it turns into debt.
Subscriptions and New Features: Good “Yield,” Unless They Distort the Core
Sezzle reported approximately 30% year-over-year subscription growth, with 211,000 additional users in subscription modules. Additionally, it launched monetization features such as an Earn tab, browser extension, and price comparison tools.
This is the kind of expansion that, when done well, improves the risk profile. In portfolio management, it’s akin to adding low-correlated return sources within the same mandate. If BNPL relies too heavily on the consumer cycle and funding costs, subscriptions and engagement tools can act as stabilizers.
The nuance is that adjacent monetization often has two pitfalls:
1) Operational Complexity. Each new module adds failure surface area: support, fraud, compliance, maintenance, product. If that complexity grows faster than the margin, operational leverage reverses.
2) Value Proposition Confusion. BNPL operates at checkout with minimal friction. If the experience becomes overloaded with incentives and layers, it risks degrading conversion or increasing disputes.
So far, margin numbers suggest that Sezzle isn’t drowning in its own product. The relative decline in transaction costs is indirect evidence of control. But the point isn’t whether they can launch features; it’s whether they can do so without turning the organization into an entity with too many organs for its size.
What I do appreciate about the approach, viewed coldly, is that it aligns with a basic rule of business survival: protect the profitable core and experiment with extensions that, if they fail, won’t kill the engine.
Sezzle Mobile and ILC: Expansion with Potential and Asymmetric Negative Risk
The most visible move was Sezzle Mobile, an unlimited wireless plan starting at $29.99 per month, operating over AT&T’s network through Gigs. This isn’t BNPL. This is embedded telecom as an adjacent financial product.
The risk here isn’t moral or reputational; it’s about economic physics. In telecom, margin and execution depend on distinct structures: wholesale agreements, churn, support, device financing, and a price war that doesn’t forgive. If Sezzle Mobile is a light layer (a “reseller” with good integration and low fixed costs), it could serve as a retention bait and as a channel for recurring payments. If it becomes a mini-operator with rising costs, the effect could be the opposite: a business line consuming management attention and degrading the multiple.
Even more delicate is the regulatory front: Sezzle is exploring an ILC bank charter, aiming to apply in H1 2026 while recognizing execution and regulatory uncertainty. An ILC could allow it to originate and hold loans on balance, potentially enhancing unit economics and reducing reliance on third parties. But at risk, this has a name: regime change.
With an ILC, at least three things change:
- Oversight and Compliance Costs. Regulation is not a “feature”; it’s a permanent structure.
- Balance and Liquidity Management. Originating and retaining credit can improve margins but demands discipline in provisioning, stress testing, and risk governance.
- Cycle Sensitivity. In a macro shock, a proprietary balance amplifies losses if the underwriting isn’t calibrated.
Sezzle has already expanded its credit line to $225 million, aiding growth. Yet as it approaches a banking model, the market will demand metrics of credit risk and resilience, not just growth and margin. The upside exists; the downside does as well, and it often materializes suddenly.
Put as an investment analogy: moving from asset-light BNPL to a chartered and proprietary balance structure can be like shifting from equities to structured credit. The coupon might rise, but mistakes come with negative convexity.
The Pattern Sezzle Sets for the Industry is Uncomfortable
The BNPL sector has had a narrative problem: promising profitable scale while many players lived with losses or weak margins. Sezzle, with 66.1% annual revenue growth and $133.1 million net income, stakes a claim.
The industry can no longer say that “nobody” achieves profitability; it now must explain why it does not.
This does not make Sezzle invulnerable. Its stock has already shown that the market treats it as a high beta asset, and analysts maintain caution with price target cuts and “hold” ratings in some cases. But it does force a shift in the standard: the debate ceases to be about “growing” and shifts to “growing without breaking structure.”
For me, the main strategic risk lies not in the core BNPL but in the temptation to overextend the perimeter in two directions at once: telecom (operational product) and ILC charter (regulatory product). Each one separately is complex; together, they raise the correlation of failures.
The ideal case is modularity: for Mobile to be a play with variable costs and for the ILC, if it proceeds, to be built with risk control and governance in mind, without contaminating the checkout engine. When companies confuse expansion with dispersion, profitability ceases to be a shield and becomes a lure.
The balance of evidence today is clear: Sezzle closed 2025 with material profitability and signs of operational leverage, and its structural survival in 2026 will depend on maintaining this discipline while limiting the regime change risk associated with telecom and a potential ILC license.
