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Zip Co casts doubt on Sezzle deal, flags impact of US government stimulus removal
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Zip Co (ASX:Z1P) says there is still “no certainty” its discussions with fellow BNPL player Sezzle (ASX:SZL) will result in a deal.
It follows a response to media reports by Zip Co on January 25, where it confirmed it was in talks with the US-based company on a possible acquisition.
The update formed part of Z1P’s half-year results announcement this morning, where it said revenues came in at $302.2m on transaction volumes of $4.5bn (margin: 6.7%).
Zip Co and Sezzle
Zip shares closed at $3.21 on the day it announced the Sezzle talks, but since then the BNPL sector has continued to remain out of favour with investors.
This morning’s trading update failed to reverse that trend for Zip, which fell by around 3% in morning trade and is now trading below $2.50 — its lowest level since April 2020.
Having had about a month to take a closer look at Sezzle’s books, Zip Co indicated that it isn’t yet ready to make any moves on an acquisition play.
Sezzle shares fell by around 5% in morning trade to $1.77. In June 2019, the company raised $43.6m in an IPO priced at $1.22 per share.
Zip Co said today it will “always be disciplined in its assessment” of potential M&A opportunities.
The company said its M&A strategy is focused around building scale in more developed BNPL markets, and building a faster path to profitability.
By the numbers
Elsewhere in today’s update, Zip reported a pick-up in net bad debts to 2.6% of total transaction volumes (around $117m).
It attributed that change in part to its efforts to expand its BNPL platforms to less mature markets including India, and provided a notable indicator of how its business model has been affected by US fiscal stimulus.
Zip Co reported “a change in the external environment in the US impacting the industry, with the easing of government stimulus affecting consumer portfolios generally”.
The group flagged cash operating costs of $204.5m tied to its push into new markets, and an EBITDA loss of $108m.
On the capital management side, Zip Co said it closed out December 31 with $212.5m in the bank and “significant headroom” in its undrawn debt funding facilities.
Zip Co also said it’s embarked on cost-saving initiatives, adjusting its capital allocation to markets “where Zip believes there is a near term pathway to profitability”.
