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March 24, 2022

Zip’s acquisition of Sezzle is unlikely to lead to profitability

Arnie Cho, Senior Payments Analyst at GlobalData discusses the prospects for Zip following its deal to snap up rival Sezzle

Australian buy now pay later (BNPL) provider Zip has been struggling amid various hurdles over the last 12 months. In a bid to reach profitability by 2024, it has announced it will acquire US rival Sezzle to boost its US operations and remain competitive in its most important market. Zip is likely feeling the pressure given that its latest financials suggest the company is underperforming. In addition, Square’s acquisition of Afterpay is likely to strengthen the latter’s operations. Given the current market environment, Zip’s target of reaching profitability by 2024 looks unlikely even with the acquisition of Sezzle.

Free Report
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What does the future hold for BNPL market?

The global Buy Now Pay Later (BNPL) market is estimated at a massive $120 million in 2021 – representing just less than 3% of the global ecommerce market. Yet the user-base is massive, with leading provider, Klarna, alone reportedly having 87 million users in 2021. This market is only expected to grow, with established companies like Apple and Goldman Sachs moving into the BNPL sector in bids to capitalize on this trend. To help you make the most of this growing market, GlobalData’s Buy Now Pay Later in 2022 and Beyond report provides detailed insight into the BNPL sector. This report:
  • Discusses the disruptive potential of the BNPL sector on the payments industry
  • Identifies the leading companies that are driving sector growth and the benefits this new payments solution provides to both merchants and consumers
  • Analyzes the consumer’s risk of using BNPL loans and government attempts at introducing regulations to the sector
  • Uncovers the main risks that consumers expose themselves to when borrowing with BNPL
Download this free report to get to know where this developing market is headed, and how you can reshape your strategies.
by GlobalData
Enter your details here to receive your free Report.

Zip has grown its business exponentially in recent years amid rising demand for BNPL. This trend has been accelerated by the COVID-19 pandemic, with consumers increasingly making purchases online. As a result, the BNPL market in the US grew to $24 billion in 2020 and almost $100 billion in 2021. However, COVID- and lockdown-related online spending sprees have slowed down since Q4 2021 as restrictions have been lifted in the US and Australia.

There are various additional factors that may stymie Zip’s ambitions. People are starting to cut back on non-essential spending as prices rise amid high inflation – especially in the US. These inflationary pressures are not going to go away any time soon. Some economists are predicting that US consumer inflation will reach 9% in March 2022. Amid such pressures, the US Federal Reserve is expected to start raising interest rates to ease inflation. BNPL providers benefit from the extremely low interest rates we now have for short-term debts to fund their interest-free loans. Any rate increases will undermine this advantage.

In addition, with the rise of energy prices due to the conflict in Ukraine, consumers are likely to become even more conservative with their spending. Since BNPL providers partly rely on merchant fees to generate revenue, reduced spending will have a knock-on effect on their operations.

Around the time Zip announced the acquisition of Sezzle, its latest half-year financials to December 2021 were released, with the company reporting a loss of A$214.3 million ($295.3 million). Between early September 2021 to early March 2022, Zip’s stock price on the ASX fell by over 75% from A$7.03 ($5.18) to around A$1.60 ($1.17). The acquisition of Sezzle may not be enough to turn its fortunes around.

Free Report
img

What does the future hold for BNPL market?

The global Buy Now Pay Later (BNPL) market is estimated at a massive $120 million in 2021 – representing just less than 3% of the global ecommerce market. Yet the user-base is massive, with leading provider, Klarna, alone reportedly having 87 million users in 2021. This market is only expected to grow, with established companies like Apple and Goldman Sachs moving into the BNPL sector in bids to capitalize on this trend. To help you make the most of this growing market, GlobalData’s Buy Now Pay Later in 2022 and Beyond report provides detailed insight into the BNPL sector. This report:
  • Discusses the disruptive potential of the BNPL sector on the payments industry
  • Identifies the leading companies that are driving sector growth and the benefits this new payments solution provides to both merchants and consumers
  • Analyzes the consumer’s risk of using BNPL loans and government attempts at introducing regulations to the sector
  • Uncovers the main risks that consumers expose themselves to when borrowing with BNPL
Download this free report to get to know where this developing market is headed, and how you can reshape your strategies.
by GlobalData
Enter your details here to receive your free Report.

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