Zip reports record revenue on path to profitability

Australia’s largest buy now, pay later (BNPL) delivers record revenue and reaffirms it is on track for positive group cash EBTDA during 1H24.

Zip Co (ASX:ZIP) is accelerating along the path to profitability, reiterating its plan to hit positive cash flow in 1H24 as it announced solid half year results.

The company reported tightly controlled core costs which saw its EBTDA losses almost halve along with improving credit losses, despite a rising interest rate environment.

The outcomes were driven by record revenue of $351 million, marking a 19% increase from the same period the year before. Transaction volume rose by 10% year on year (YoY) to a record $4.9 billion while transaction numbers grew by 17% YoY to 42.2 million.

Zip’s active customer base increased to 7.3 million, a 4% increase YoY, while the merchant numbers also saw an uptick, rising to 97,500, up 20% YoY. The company’s cash gross profit rose 20% to $121.7 million.

Net transaction margin was also up, from 2.3% to 2.5% YoY, which the company said represented a great result in a rising cost environment.

Zip global CEO and managing director Larry Diamond said the company was pleased to deliver another strong set of results with improved credit losses and margins.

“Zip continues to accelerate its path to profitability as we execute on our strategic priorities of sustainable growth, a focus on our core markets and right-sizing our cost base,” he said.

“In an environment of rising interest rates and high inflation our results demonstrate the increasing relevance of our products to customers and merchants.”

Significant improvement in core EBDTA

Diamond said although topline growth had been tempered by deliberate adjustments to risk settings, the group’s strong net margin performance was a very clear proof point of the successful execution of Zip’s strategy to increase revenue margins and reduce credit losses.

“We continue to streamline our business, with cash EBDTA used in core markets and corporate costs decreasing from ($60m) to ($33m) for the half,” he said.

“We expect this to reduce further again by up to 50% in the second half of FY23 and this very strong result has us well and truly on the path to positive group cash EBTDA during HY24.”

The company reiterated it had sufficient available cash and liquidity to deliver positive group cash EBTDA during 1HY24 with additional cash inflows from business sales and closures expected before the end of the financial year.

US industry poised for growth

Zip achieved positive cash EBTDA in November and December in the US, driven by a strong seasonal performance, and is poised to achieve sustainable positive cash EBTDA by the end of FY23, joining its profitable Australian business.

The US market presents a vast opportunity for the group, with a total addressable market estimated to be over US$10 trillion and BNPL penetration still under 2% of total payments.

Regulation on the horizon

With regulatory risk a concern for investors, Diamond reiterated Zip’s support for “fit for purpose” regulation of the BNPL industry outlining that it would mean very little change to day to day operations.

He said the company’s current capabilities, including existing credit and affordability checking processes for new customers, and its track record of offering regulated credit under its credit licence through the Zip Money product, meant Zip was well positioned for tighter controls regardless of the outcome of the Australian Treasury review process.

Driving merchant acquisition in AU

In an environment of rising interest rates and high inflation, Diamond said the results demonstrated the increasing relevance of Zip’s products to both customers and merchants.

“In Australia, the strength of our brand and product offering continues to resonate and is attracting new merchants such as eBay AU, Qantas, Jetstar and Uber which all launched during the period,” he said.

“The expected consolidation of our space has begun and there are significant opportunities for Zip as this dynamic continues to play out. We have already experienced an increase in inbound merchant inquiries following recent developments in the market.”

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.