Something rather strange is happening with the Sezzle Inc (ASX: SZL) share price. Yesterday, Sezzle shares closed at a price of 64 cents each. But today, this ASX buy, now, pay later (BNPL) share has seemingly had a dramatic change of fortunes.
If you look up a quote for the Sezzle share price today, you will find that this company is trading for $20.16 a share at present. That’s a whopping 3,050% rise from where the company closed at yesterday.
So what on earth is going on here? Has Sezzle just announced that its profits have 100x-ed? Or that it has just been acquired for $160 billion?
Well, sadly for investors, it’s a hard no for both.
The Sezzle share price hasn’t increased in value at all today. The dramatic change in share price that we are witnessing has not come from a revaluation of the company. Rather, it is due to Sezzle executing a share consolidation.
A share consolidation (sometimes referred to as a reverse stock split) happens when a company decides to revalue each of its individual shares by reducing the overall share count. It reissues its shares at a lower overall number, which has the effect of boosting each individual share’s price.
To illustrate, let’s use a simple example. Let’s pretend that Company A has 100 shares, each with a price of $1. That would give it a market capitalisation of $100. But say the company’s management wants to make its shares look more expensive.
So it reduces its overall share count to 50, which gives each share a new price of $2. The value of the overall company hasn’t changed, only the price of its individual shares. That’s what has just happened with the Sezzle share price.
Sezzle share price rises 38-fold as reverse stock split takes effect
In this company’s case, the share count has been reduced by a factor of 38 to 1. So for existing investors, every 38 shares that they owned yesterday are now represented by one single, more expensive share today.
Sezzle has undergone this process, which was first flagged back in March, in order to increase the chances that the company can list on the US NASDAQ stock exchange. The company stated that in order to list on the NASDAQ Global Market, it must have a stock price above US$4.
This process is a complicated and lengthy one. Sezzle shares are actually currently trading under a ‘deferred settlement’ arrangement, so don’t be surprised if you see some strange ticker codes like ‘SZLDA’ or ‘SZLAM’ on the Sezzle share price flying around this week. The whole process will only be finalised on 24 May next week.
So sorry to disappoint investors, but Sezzle has definitely not enjoyed a 3,050% gain today. Saying that, this ASX BNPL share has had a promising start to 2023, with the Sezzle share price up a healthy 56.1% year to date. However, the company is also down more than 94% from its all-time highs that we saw back in 2020.
