BNPL declines as Hindenburg Research targets short selling by Reuters

(Reuters) – Buy now, pay later Sezzle shares fell on Wednesday after Hindenburg Research revealed a short position, citing risky lending practices coupled with a decline in clients and dealers.

Sezzle stock, which has gained more than 1,000% so far this year, fell as much as 28.6% to $225 earlier in the session, before paring some losses. It was last trading down 14%.

“Our findings show that Sezzle is borrowing expensive capital to make extremely risky loans through a distressed platform that is rapidly losing customers and merchants,” the short seller said.

Hindenburg, who was behind India’s Adani Group’s $100 billion-plus market rout and also targeted Jack Dorsey-led Block, added that Sezzle insiders were selling shares or cashing out through a massive margin loan.

Sezzle did not immediately respond to a Reuters request for comment. Reuters was unable to independently confirm the allegations in Hindenburg’s report.

BNPL is a financing option that allows consumers to make purchases and pay for them over time, usually in a series of installments. Their popularity boomed in 2020 after the coronavirus (COVID-19) pandemic forced more shoppers online.

Since most BNPL providers do not report their loans to credit reporting agencies, data on delinquencies is sparse.

In November, Sezzle reported that core merchant sales rose 40.6% year over year for the quarter ended September 30.

It also raised its full-year adjusted earnings and revenue growth forecasts.

Founded in 2017 by Nathan Anderson, Hindenburg is a forensic financial research firm that analyzes stocks, credit, and derivatives.

Hindenburg invests its own capital and takes short positions against companies. After discovering potential violations, the company usually publishes a report explaining the case and betting against the target company in hopes of making a profit.

Short sellers typically sell borrowed securities and aim to buy them back at a lower price.