Pole position: Zip Co reports 50%+ growth as the BNPL pure play accelerates path to profitability

Special Report: One of the the ASX’s leading BNPL pure play, Zip Co has reported record growth across key metrics, reaffirming profitability targets.

Zip Co (ASX:ZIP) has reported another year of record operating results with the leading BNPL company highlighting 57% revenue growth year on year (YoY), a strong balance sheet and capacity to support the company’s pathway to profitability by 2024.

The company saw record growth across key operating metrics showing the continued strength of the BNPL category with Total Transaction Volume (TTV) up 51% year on year (YoY) to a total of $8.7 billion whilst Customer accounts increased by 56% YoY to 11.4 million. Merchant partners rose a hefty 77%.

The outlook for the Company appeared strong thanks to significant progress over the year on restructuring and cost cutting which should strongly benefit its FY23 result in particular. Zip noted its resilience in a rising interest rate environment and the ample funding available to it to reach its goal of profitability

Co-founder and CEO Larry Diamond said the company had acknowledge the changing external environment and adapted accordingly.

“Against this backdrop, we changed strategy and shifted to delivering sustainable growth, right-sizing our global cost base and accelerating the path to profitability,” he said.

Leading the pack

Zip’s revenue margins lifted to 7.1% with the company’s unique revenue model continuing to outperform its peer group.

Diamond said the company’s strategy to “right-size” the company’s global cost base was well and truly underway with closure of Zip Singapore and Zip UK as part of a process to reduce global people costs to deliver more than $30 million in EBITDA benefits in FY23.

“We have already delivered on a number of initiatives to reduce cash burn, manage credit losses and improve unit economics,” he said.

“Our ability to pivot and adapt to the new world showcases the resilience and viability of our business model as we focus on the opportunity ahead in FY23.”

Strengthening credit quality

Zip’s strategy to drive losses towards its target level of 2% of total transaction value also appears to be paying off.

Tightened decisioning rules, enhanced credit limit management and optimised its approach to repayments and collections saw improved loss rates in the US in particular. Importantly, the company guided to further improvements with group credit losses expected to trend towards ~2% of TTV over 2023

As the interest rate environment changes Zip said it was well placed to respond and expects to offset, the effects of rising interest rates through a series of new initiatives which are in train.

In particular, the company said the US business was well placed where interest costs as a percentage of total transaction value improved by 20bps YoY reflecting an improvement in facilities pricing there and in Australia.

Merchant pipeline

Zip established partnerships with leading US retailers Best Buy and Bed Bath & Beyond as well as Qantas and Virgin Australia during the 12 months and Diamond said the company’s offering was more valuable than ever.

“In times of heightened inflation and cost of living pressures, BNPL has become even more of an important Budgeting tool for everyday consumers,” he said.

“That is why we have never felt more passionate about giving people knowledge, access and the ability to control their financial lives so they can live every day with confidence.

This article was developed in collaboration with Zip Co, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.