The Z1P trading update shows it’s clipping the ticket at 7pc per transaction
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Zip Co (ASX:Z1P) became the latest BNPL player to check in with a March quarter trading update this morning, and investors approved.
The stock rose >10pc and is on track to close above $9 for the first time since March 5, after flagging some strong growth metrics for its US subsidiary Quadpay.
Zip Co said its Quadpay platform generated record transaction volume of $762 million which flowed through to revenue of $54.4m (up 188pc y/y).
The revenue figure represents a gross transaction margin of more than seven per cent. Gross transaction volume for Z1P’s Australia/New Zealand operations came in it $837.3m, which flowed through to revenue of $57.9m — a gross margin of 6.9 per cent.
The number suggest that across Zip Co’s global business, it’s generating gross margins of seven per cent from merchants for facilitating BNPL transactions with end-customers.
Net bad debts from its Australian operations came in at 1.78pc (down from 1.93pc), an improvement Zip Co attributed to its credit decisioning models and risk management capability.
Those figures are indicative of a net margin on Australian operations of 5.12 per cent, before funding costs.
Zip Co didn’t provide a bad debts figure from its Quadpay business, but said net transaction margins — adjusted for bad debts and funding costs — continue to remain stable above two per cent, demonstrating “very strong unit economics”.
In research last year, UBS said Zip Co’s ‘Tap and Zip’ deal with Visa was a “significant” development that could be reflective of cost competition coming to the sector.
However, Zip Co’s transaction margins for the March quarter are still materially higher than the interchange fee for Australian debit cards of around 0.43 per cent.
After announcing another partnership with JB Hi-Fi at the end of March, Zip Co flagged other partnerships it secured in the quarter with brands including Microsoft, The Good Guys and the recently-listed Adore Beauty.
The company said it also picked up another 1.6m downloads of the Zip Co app across its global markets in the quarter, bringing its total number of app downloads to 7.6m.
In his comments accompanying the announcement, Zip Co CEO Larry Diamond said he’s also optimistic about growth from the company’s UK operations in the year ahead.
Accompanying Zip Co’s results there was some bullish market sentiment across BNPLs more broadly today, following the selloff that took place after bond yields jumped in February
Splitit (ASX:SPT) rose more than 10 per cent to 86c after announcing a partnership agreement with UnionPay International, part of China UnionPay, but the stock is still well off its 2020 highs above $1.80.