Sezzle (SEZL) Q3 2025: Subscription Pivot Lifts Take Rate to 11.2% as On-Demand De-emphasized
Sezzle’s Q3 marks a strategic shift back to subscriptions, driving a stronger take rate and improved customer lifetime value even as on-demand is deprioritized. Operational discipline and targeted marketing underpin robust profitability and cash generation. Management raises 2025 and 2026 profit guidance, signaling confidence in the subscription-led model and product innovation pipeline.
Summary
- Subscription Refocus: Sezzle pivots marketing and product emphasis back to subscriptions, prioritizing higher lifetime value users.
- Profitability Discipline: Margin strength and cost control sustain robust cash generation despite increased strategic investment.
- Guidance Confidence: Raised 2025 EBITDA and 2026 EPS outlook reflects conviction in model scalability and product roadmap.
Performance Analysis
Sezzle delivered exceptional top-line momentum in Q3, with total revenue up 67% year-over-year to $116.8 million and GMV (Gross Merchandise Volume, total dollar value of transactions processed) up 58.7%—the company’s first billion-dollar quarter. The business model, centered on BNPL (Buy Now Pay Later, short-term installment lending), continues to scale efficiently, as non-transaction-related operating expenses fell to 27.1% of revenue, down nearly three percentage points year-over-year.
Take rate expanded to 11.2%, reflecting a deliberate shift toward high-LTV (Lifetime Value) subscription users and away from lower-margin on-demand offerings. The adjusted EBITDA margin held strong at 33.9%, and GAAP net income margin rose to 22.8%. Transaction-related costs increased as a percentage of GMV due to broader underwriting, but credit losses (PLR, Provision for Loan Receivables) at 3.1% remain within the guided range. Cash from operations reached $33.1 million for the quarter, supporting both debt paydown and balance sheet strength.
- Subscription User Growth: Subscribers rose to 568,000, reversing prior declines and validating the marketing pivot.
- On-Demand De-emphasis: On-demand users plateaued as Sezzle shifted focus, with conversion and profit metrics underperforming expectations.
- AI and Product Features: New app features (Earn tab, Sezzle Arcade, MoneyIQ) and AI-driven support tools drive engagement and operational leverage.
Overall, the quarter underscores Sezzle’s ability to balance rapid growth with profitability, leveraging data-driven marketing and product innovation to steer user mix toward sustainable economics.
Executive Commentary
"We just posted revenue growth of 67% year on year in Q3. Our net income margin for the quarter was over 22%. Our return on equity for the last 12 months exceeded 100%. And our consumer metric measured by mods rose almost 50% year on year. Further, we are raising our EPS and EBITDA guidance for 2025 and have received awards from some of the most respected media outlets, Time, US News, Newsweek, and CNBC. What's our secret sauce? I believe it's our constant drive. We are never satisfied and are always pushing forward."
Charlie Joachim, CEO and Executive Chairman
"The enhancement of our product experience and deeper consumer engagement drove remarkable results for the quarter... Our profitability followed a similar growth trend, with gap net income and adjusted net income growing over 50%, to $26.7 million and $25.4 million, respectively. Our margins held steady year over year, with an adjusted EBITDA margin of 33.9% and total revenue less transaction-related costs of 54.2%. Most importantly, alongside our growth is our ability to scale efficiently, evidenced by our non-transaction-related operating expenses decreasing 2.9 percentage points year over year to 27.1%."
Karen Harchie, Chief Financial Officer
Strategic Positioning
1. Subscription-First Model Drives Monetization
Sezzle’s decisive return to a subscription-led model marks a critical inflection. After testing on-demand products, management observed weaker conversion to high-value users and lower profitability. By re-allocating marketing spend to subscriptions, Sezzle grew subscribers to 568,000, reversing previous declines and boosting take rate. This approach is designed to maximize LTV and recurring margin, as subscription users exhibit higher engagement and retention.
2. On-Demand as Merchant Acquisition Lever
On-demand remains in the toolkit, but its role has shifted to supporting enterprise merchant wins rather than broad consumer acquisition. While on-demand can attract new users with less friction, its economics lag subscription. Management now deploys on-demand selectively, using it to address merchant needs or as a fallback for consumers resistant to subscription, preserving overall profitability.
3. AI and Feature Innovation Enhance Engagement and Scale
Sezzle’s product roadmap is increasingly AI-driven, with new features like the Earn tab (cashback and rewards), Sezzle Arcade (gamified engagement), and MoneyIQ (financial education) fueling app activity. The AI-powered support chatbot is already improving operational efficiency, allowing the company to scale without proportional increases in headcount. This technology focus supports both user experience and cost leverage.
4. Capital Structure and Strategic Projects
Sezzle expanded its credit facility to $225 million to support seasonal demand and provide flexibility for future growth. Management is also exploring a potential ILC (Industrial Loan Company) charter, which could further reduce funding costs and enhance efficiency, though this is a long-term and uncertain process. Incremental strategic project costs were called out transparently, reflecting discipline in managing non-core expenditures.
5. Underwriting Expansion with Risk Controls
Broader underwriting aperture has increased transaction-related costs, but Sezzle’s short-duration lending model allows rapid portfolio adjustments. Credit metrics remain within guided ranges, and new underwriting models aim to preserve approval rates while reducing loss rates, supporting both growth and risk management.
Key Considerations
This quarter’s results reflect a maturing BNPL business balancing growth, profitability, and innovation as competitive dynamics intensify and consumer credit scrutiny rises.
Key Considerations:
- Mix Shift to Subscription: The move back to subscription products is expected to drive higher take rate and LTV, but may temper near-term GMV growth.
- AI-Driven Efficiency: Early AI investments are already reducing support costs and are positioned to drive further operating leverage as scale increases.
- Strategic Flexibility: Expanded credit facility and ongoing ILC exploration provide optionality for future funding and margin improvement.
- Credit Quality Vigilance: While credit losses remain controlled, continued underwriting expansion requires close monitoring amid macro uncertainty.
- Product Engagement as Growth Engine: New app features and engagement tools are central to user retention and upsell into subscriptions.
Risks
Key risks include potential macroeconomic shocks impacting consumer repayment, regulatory scrutiny of BNPL products, and increased competition from both fintechs and legacy players. Sezzle’s expansion of underwriting could expose it to higher loss rates if consumer credit deteriorates. The timing and outcome of strategic projects like the ILC charter remain uncertain and could impact long-term cost structure.
Forward Outlook
For Q4 2025, Sezzle guided to:
- Continued revenue and net income growth driven by subscription user expansion
- Transaction-related costs trending toward the lower end of the 2.5%–2.75% provision target
For full-year 2025, management raised guidance:
- Adjusted EBITDA of $175–$180 million (up from $170–$175 million)
- GAAP EPS $3.52, Adjusted EPS $3.38
2026 adjusted EPS guidance is $4.35, reflecting 29% growth, with assumptions of sustained subscription growth, cost discipline, and stable credit performance. Management highlighted continued focus on high-LTV user acquisition and operational leverage as key drivers.
- Subscription marketing to remain the primary growth lever
- Potential for incremental upside from new product launches not yet in guidance
Takeaways
Sezzle’s Q3 demonstrates the power of disciplined strategic pivots, as the company leans into subscription economics and operational leverage while maintaining flexibility for future growth bets.
- Subscription Shift Drives Take Rate and LTV: The move back to subscription-first growth is already showing up in improved take rate and subscriber momentum, with a clear strategy to maximize profitability per user.
- AI and Product Innovation Underpin Efficiency: Early AI deployment and new app features are not only driving engagement but also creating a scalable cost structure for future expansion.
- Watch Credit and Competitive Response: Investors should monitor credit loss trends as underwriting expands and track how competitors respond to Sezzle’s subscription emphasis and product suite evolution.
Conclusion
Sezzle’s Q3 2025 results reflect a business that is both agile and disciplined, with a clear focus on subscription-driven economics, operational efficiency, and product innovation. The company’s raised guidance and robust cash generation provide a foundation for continued growth, though vigilance on credit quality and competitive threats remains warranted.
Industry Read-Through
Sezzle’s pivot back to subscriptions and focus on high-LTV users signals a broader trend for BNPL providers, emphasizing profitability and user quality over pure volume. The integration of AI for support and engagement is likely to become table stakes as the sector matures. Competitors may follow Sezzle’s lead in rebalancing toward recurring revenue models and disciplined underwriting. For traditional lenders and fintechs alike, the evolving economics of BNPL highlight the importance of user mix, product innovation, and risk management in capturing durable value in consumer finance.