Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Zip leaves Sezzle wanting at the alter
Citing macroeconomic and market conditions, Zip Co Limited (ASX: ZIP) and Sezzle Inc (ASX: SZL) have mutually agreed to terminate their previously announced merger.
Zip will pay $16.3 million to cover costs Sezzle incurred during the now kaput transaction. The remuneration looks to be a settlement between the buy-now-pay-later (BNPL) firms given the original merger agreement stated a break fee of $31.4 million should Zip walk away.
The market’s reaction to the news illustrated who needed who more. The Zip share price added 6 per cent on Tuesday. Conversely, the Sezzle share price sunk 39 per cent.
Chair of the Zip Board Diane Smith-Gander said:
“We believe that mutually terminating the merger agreement with Sezzle at this time is in the best interests of Zip and its shareholders, and will allow Zip to focus on its strategy and core business in the current environment.”
The commentary is a far cry from the budding romance when the merger was originally announced in February. Management spruced $130 million in cost synergies in addition to a combined entity of 13.3 million customers and 128,800 merchants. At the time the agreement valued Sezzle at $491 million.
Zip also raised $200 million to support its ongoing growth. Shareholders, both retail and institutional who participated in the raising are down 72 per cent in under five months.
The market has since gone sour on the BNPL sector as investors begin to reward earnings rather than revenue at any cost. In fact, the entire viability of the BNPL industry has been called into question.
Bad debts continue to climb, and competition has only become more fierce. Conditions won’t get any easier, with interest rates on the rise and inflation hitting purchasing power. Subsequently, BNPL valuations across the board have been slashed.
Swedish buy-now-pay-later leader Klarna recently had its valuation drop 85 per cent from $46 billion to $6.7 billion.
Meanwhile, US-based Affirm Holdings (NASDAQ: AFRM) share price is down 87 per cent from its high in November last year.
There doesn’t seem to be a reprieve in sight for either Zip or Sezzle. The latter provided lacklustre preliminary second-quarter figures, achieving immaterial annual growth in merchant sales and total income.
Zip reiterated its ambition to become profitable by FY24. But with a market demanding earnings today, it’s going to be a long 18 months for the former market darling.
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