“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,” she said. Zip’s stated strategy includes increasing its US customer base and reaching profitability in 2024.
Sezzle chief executive Charlie Youakim also said his group was also dedicated to moving toward profitability and free cash flow as it was the best outcome for shareholders.
Zip’s shares rose 6 per cent to close at 53 cents,while Sezzle’s shares dived 38.5 per cent to 26 cents.
UBS analyst Tom Beadle said in a note to clients that the termination of proposed Sezzle merger adds more uncertainty to Zip’s outlook but may aid near term cash burn.
“Less than three weeks ago (22 June),Zip provided an update to the market noting that the acquisition of Sezzle remained on track,hence we are somewhat surprised at the timing and reasoning contained in today’s announcement.”
“With macroeconomic and market conditions cited as a reason,we believe this adds further uncertainty to the near term outlook.”
Payments industry veteran and independent analyst Grant Halverson said the fall in Klarna’s valuation and Zip and Sezzle scrapping their tie up was “just other step in the unwinding of the BNPL bubble”.
“BNPL start-up apps have been hit with a ‘perfect storm’ - regulation,increased competition,increased bad debts,increased funding rates and increased interest rates,” Halverson said,adding that Klarna had taken four months to get its raising away.
On the local players,Halverson said:“Zip have finally woken up and scraping the Sezzle deal is sensible if they want to survive – that’s what it is now a race to survive.”
Despite the concern about the sector,Klarna was sounding positive about the future having raised $US800 million,albeit at a much lower price than in previous raisings.
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“It’s a testament to the strength of Klarna’s business that,during the steepest drop in global stock markets in over fifty years,investors recognised our strong position and continued progress in revolutionising the retail banking industry,” Klarna chief Sebastian Siemiatkowski said.
A Commonwealth Bank spokesman confirmed the bank had participated in the capital raising by Klarna. Its stake is around 5 per cent.
“Since our initial investment in 2019,Klarna has almost trebled its global revenue,customer base and transaction volumes and now generates $US1 billion in gross profit from its established European markets,” the spokesman said.
“We also remain firmly committed to our partnership in Australia and New Zealand,” he added.
“The change in Klarna’s valuation will be reflected in CBA’s end-of-year accounts,and will have no impact on the bank’s income,profit or capital position.”
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