Zip shares rally as BNPL upgrades guidance on profitability

Australia’s largest buy now, pay later company is anticipating reaching profitability sooner than expected despite challenging market conditions.

Zip Co (ASX:ZIP) has posted a fourth quarter earnings report showing a renewed focus on the pathway to profitability with the established buy now, pay later (BNPL) flagging a financial strategy to fast-track profitability.

The company had previously said it was aiming to reach that point in 2024 but co-founder and CEO Larry Diamond said recent actions, including its decision to terminate its merger with US BNPL Sezzle, could see the company reach break-even earlier.

“Given the significant and sudden changes to the broader macro and capital environment since signing, Sezzle and Zip mutually agreed to terminate the proposed transaction, both businesses opting to focus on their core strategy,” he said.

“This coupled with recent decisions made, as well as ongoing strategic initiatives, will see the group reach cash EBTDA profitability earlier than anticipated.”

Solid set of results

Zip posted solid results despite a tough external environment for the sector.

The company reported a 27% jump in revenue to $160.1 million with US revenue increasing 12% and ANZ 30% year on year (YoY).

Transaction volumes were up 20% to $2.2 billion as merchant numbers soared by 77%. The company signed Qantas and Bed Bath & Beyond (US) in the quarter while Best Buy went live during that time. Zip also launched its physical card in the US and Zip Rewards in-store in Australia.

The company recently celebrated its ninth birthday and co-founder and Diamond said the resilience of the business model was evident.

“(Zip) is well placed to thrive through the next stage of the journey,” he said.

Quality credit

Diamond also flagged encouraging trends in credit quality in the US and Australia saying the company maintained its term targets with respect to loss rates.

US loss rates decreased to 2.7% of total transaction volume (TTV) for the quarter and the company outlined initiatives implemented during that period to reduce group cash burn including actions to right-size the company’s global footprint and mutual termination of its proposed acquisition of Sezzle.

Zip said it expects these actions and initiatives to see the company trend toward its medium-term target of less than 2% of TTV.

Sezzle deal

Zip shares soared last week when the company announced the merger had been mutually terminated due to current challenging macroeconomic and market conditions.

Diamond said the decision enabled Zip to sharpen its focus.

“This, coupled with decisions made and implemented, as well as ongoing strategic initiatives will see the group reach cash EBITDA profitability earlier than anticipated,” he said.

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.