Money Mover
Sezzle CEO Charlie Youakim (shown in a lounge above his Minneapolis office) takes phone calls on his treadmill to get in 10 miles a day.
The future looked grim in mid-2022 for Minneapolis-based Sezzle, an also-ran in the fast-growing buy-now, pay-later fintech business. It had burned through most of the $115 million it had raised in a 2019 initial public offering on the Australian stock market and two subsequent offerings. A rescue deal it had struck to be acquired by a competitor was collapsing, along with both companies' stock prices. And when tiny Sezzle tried to sign up big retailers, it had to make too many concessions to ever turn a profit—a problem because the typical buy-now, pay-later transaction, which allows online shoppers to pay for purchases in four installments at 0% interest, relies on subsidies from merchants.
Meanwhile, investor enthusiasm for money-losing fintechs, which surged during the early days of the pandemic, was evaporating. Venture capital funding for the sector fell from a record $141 billion worldwide in 2021 to $39 billion in 2023, per CB Insights.
"We were reaching a tech-pocalypse with interest rates rising, and [investors were] thinking 'We've got to look at the fundamentals of companies, and our fundamentals were not great,' remembers Charlie Youakim, Sezzle's 47-year-old CEO and cofounder.
To survive, he started chopping. He shuttered the company's operations in Europe, India and Brazil, cut worldwide staff from 580 to 240 and began shedding unfavorable partnerships. He even trimmed headcount in the U.S.—the heart of Sezzle's business—by 10% and made symbolic changes like canceling the $500-a-month contract for a fancy Bevi machine that dispensed carbonated and flavored water at headquarters.
Up against much bigger and better-funded competitors such as San Francisco-based Affirm and Sweden's Klarna, Youakim couldn't simply cut his way to survival, let alone profitability. He needed a new revenue source and strategy. He found both by focusing on the niche of heavy users, chronic buy-now, pay-later addicts.
In 2022, Sezzle launched a $12.99-a-month subscription service aimed at these frequent fliers, with benefits including access to more retailers and flexibility in rescheduling payments. Those opting for the premium Sezzle Anywhere—introduced in June 2023—pay $17.99 a month and can use 0% installment buying at physical stores and restaurants too by loading a virtual Visa card onto their phones. In all, Sezzle has 529,000 subscribers.
That $17.99 monthly charge works out to $216 a year. That's expensive when a host of credit cards charge no annual fees and pay cash back on all purchases. But many buy-now, pay-later users don't qualify for the best credit card deals. A recent study by the Consumer Financial Protection Bureau found that most buy-now, pay-later loans are made to borrowers with subprime credit scores and that heavy users are more likely than other Americans to have outstanding student and personal loans, in addition to their credit card balances. Three-quarters of Sezzle's users are Gen Z or Millennials.
Here's another way to look at Sezzle's offering, which gets mixed user reviews online. Credit cards now carry an average annual interest rate of 21.5% (though people with low credit scores typically pay more). Using that average, $216 is roughly the interest someone carrying a constant $1,000 balance on a credit card would pay in a year. Sezzle won't disclose the average outstanding balance subscribers have. (Surprisingly, it doesn't even give subscribers a credit limit; each purchase is approved individually, the company says.) It's safe to say $216 is a steep price for in- frequent users, but for the heaviest users of Sezzle Anywhere—the top 10%—make an average of 10 transactions each month, it may be a bargain.
With subscriptions bringing in a growing share of revenue—33% in the third quarter of 2024—Sezzle has been profitable for more than two years. For the first nine months of 2024, it reported $53 million of net income ($8.94 a share on a diluted basis) on 57% growth in revenue to $173 million. By contrast, Affirm, which went public in January 2021, lost $279 million on $1.9 billion in revenue during the same nine months. Klarna, which is preparing for a U.S. initial public offering, lost $10 million in the first nine months on $1.8 billion in sales and is finally turning quarterly profits. It started its own subscription service in the U.S. last year.
Both champions and skeptics have taken notice. Sezzle's stock, which listed on Nasdaq in August 2023, shot up 2,000% during the first 11 months of 2024. It has fallen 44% since, including 23% on December 18, when short-seller Hindenburg Research issued a report savaging Sezzle as a "failing" platform that had "already been left in the dust" by larger competitors and reported user numbers using short-term tricks. Its stock recently traded around $240 a share, for a total market cap of $1.3 billion, making Youakim's 44% stake worth nearly $600 million.
As Hindenburg points out, Sezzle's merchant roster has declined by more than half since 2021 to 23,000, while its active customer count is down 20% to 2.7 million. "You should not be focused on keeping active customer accounts high at the sake of financial performance. I call them vanity metrics. The real metrics that matter are performance metrics," Youakim says, pointing to Sezzle's growth in sales and profits.
image [https://cdn.magzter.com/1369322608/1740409964/articles/qWCFx1snO1740484332093/1A4isX5Vn1740487444086.jpg]
This isn't Youakim's first startup. Minnesota born and -bred (his father is a Palestinian immigrant), he graduated in 1999 from the University of Minnesota with a degree in mechanical engineering and a knack for coding. He spent his 20s working for a parking software company before heading back to the University of Minnesota in 2008 for an MBA. Graduating in the wake of the Great Recession, he found job prospects limited and started Passport, his own mobile parking payments company, in Charlotte, North Carolina, with a cousin. The company was successful, but the cousins butted heads. Youakim was pushed out at the end of 2015.
Wanting to stay in payments, in 2016 he founded Sezzle with Paul Paradis, a business school buddy who wanted to stay in Minnesota.
They raised $1.8 million in a seed round and in 2017 launched a product that aimed to lower transaction costs for merchants. When that fell flat, Youakim drew inspiration from Afterpay, an Australian-born buy-now, pay-later startup. (Afterpay entered the U.S. market in 2018 and was boug...
Sezzle CEO Charlie Youakim (shown in a lounge above his Minneapolis office) takes phone calls on his treadmill to get in 10 miles a day.
The future looked grim in mid-2022 for Minneapolis-based Sezzle, an also-ran in the fast-growing buy-now, pay-later fintech business. It had burned through most of the $115 million it had raised in a 2019 initial public offering on the Australian stock market and two subsequent offerings. A rescue deal it had struck to be acquired by a competitor was collapsing, along with both companies' stock prices. And when tiny Sezzle tried to sign up big retailers, it had to make too many concessions to ever turn a profit—a problem because the typical buy-now, pay-later transaction, which allows online shoppers to pay for purchases in four installments at 0% interest, relies on subsidies from merchants.
Meanwhile, investor enthusiasm for money-losing fintechs, which surged during the early days of the pandemic, was evaporating. Venture capital funding for the sector fell from a record $141 billion worldwide in 2021 to $39 billion in 2023, per CB Insights.
"We were reaching a tech-pocalypse with interest rates rising, and [investors were] thinking 'We've got to look at the fundamentals of companies, and our fundamentals were not great,' remembers Charlie Youakim, Sezzle's 47-year-old CEO and cofounder.
To survive, he started chopping. He shuttered the company's operations in Europe, India and Brazil, cut worldwide staff from 580 to 240 and began shedding unfavorable partnerships. He even trimmed headcount in the U.S.—the heart of Sezzle's business—by 10% and made symbolic changes like canceling the $500-a-month contract for a fancy Bevi machine that dispensed carbonated and flavored water at headquarters.
Up against much bigger and better-funded competitors such as San Francisco-based Affirm and Sweden's Klarna, Youakim couldn't simply cut his way to survival, let alone profitability. He needed a new revenue source and strategy. He found both by focusing on the niche of heavy users, chronic buy-now, pay-later addicts.
In 2022, Sezzle launched a $12.99-a-month subscription service aimed at these frequent fliers, with benefits including access to more retailers and flexibility in rescheduling payments. Those opting for the premium Sezzle Anywhere—introduced in June 2023—pay $17.99 a month and can use 0% installment buying at physical stores and restaurants too by loading a virtual Visa card onto their phones. In all, Sezzle has 529,000 subscribers.
That $17.99 monthly charge works out to $216 a year. That's expensive when a host of credit cards charge no annual fees and pay cash back on all purchases. But many buy-now, pay-later users don't qualify for the best credit card deals. A recent study by the Consumer Financial Protection Bureau found that most buy-now, pay-later loans are made to borrowers with subprime credit scores and that heavy users are more likely than other Americans to have outstanding student and personal loans, in addition to their credit card balances. Three-quarters of Sezzle's users are Gen Z or Millennials.
Here's another way to look at Sezzle's offering, which gets mixed user reviews online. Credit cards now carry an average annual interest rate of 21.5% (though people with low credit scores typically pay more). Using that average, $216 is roughly the interest someone carrying a constant $1,000 balance on a credit card would pay in a year. Sezzle won't disclose the average outstanding balance subscribers have. (Surprisingly, it doesn't even give subscribers a credit limit; each purchase is approved individually, the company says.) It's safe to say $216 is a steep price for in- frequent users, but for the heaviest users of Sezzle Anywhere—the top 10%—make an average of 10 transactions each month, it may be a bargain.
With subscriptions bringing in a growing share of revenue—33% in the third quarter of 2024—Sezzle has been profitable for more than two years. For the first nine months of 2024, it reported $53 million of net income ($8.94 a share on a diluted basis) on 57% growth in revenue to $173 million. By contrast, Affirm, which went public in January 2021, lost $279 million on $1.9 billion in revenue during the same nine months. Klarna, which is preparing for a U.S. initial public offering, lost $10 million in the first nine months on $1.8 billion in sales and is finally turning quarterly profits. It started its own subscription service in the U.S. last year.
Both champions and skeptics have taken notice. Sezzle's stock, which listed on Nasdaq in August 2023, shot up 2,000% during the first 11 months of 2024. It has fallen 44% since, including 23% on December 18, when short-seller Hindenburg Research issued a report savaging Sezzle as a "failing" platform that had "already been left in the dust" by larger competitors and reported user numbers using short-term tricks. Its stock recently traded around $240 a share, for a total market cap of $1.3 billion, making Youakim's 44% stake worth nearly $600 million.
As Hindenburg points out, Sezzle's merchant roster has declined by more than half since 2021 to 23,000, while its active customer count is down 20% to 2.7 million. "You should not be focused on keeping active customer accounts high at the sake of financial performance. I call them vanity metrics. The real metrics that matter are performance metrics," Youakim says, pointing to Sezzle's growth in sales and profits.
image [https://cdn.magzter.com/1369322608/1740409964/articles/qWCFx1snO1740484332093/1A4isX5Vn1740487444086.jpg]
This isn't Youakim's first startup. Minnesota born and -bred (his father is a Palestinian immigrant), he graduated in 1999 from the University of Minnesota with a degree in mechanical engineering and a knack for coding. He spent his 20s working for a parking software company before heading back to the University of Minnesota in 2008 for an MBA. Graduating in the wake of the Great Recession, he found job prospects limited and started Passport, his own mobile parking payments company, in Charlotte, North Carolina, with a cousin. The company was successful, but the cousins butted heads. Youakim was pushed out at the end of 2015.
Wanting to stay in payments, in 2016 he founded Sezzle with Paul Paradis, a business school buddy who wanted to stay in Minnesota.
They raised $1.8 million in a seed round and in 2017 launched a product that aimed to lower transaction costs for merchants. When that fell flat, Youakim drew inspiration from Afterpay, an Australian-born buy-now, pay-later startup. (Afterpay entered the U.S. market in 2018 and was boug...
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Forbes (Digital) - 1 Issue, February/March 2025