Australia’s largest pure play listed BNPL players keeps credit quality solid and on track for group positive cash EBTDA during H1 FY24

Zip Co (ASX:ZIP) has released its Q3 FY23 results, reporting solid topline growth, improved margins and a focus on credit performance as it continues its march to profitability.

Group quarterly revenue grew 15% year on year (YoY) to $182.1m with transaction volume for the quarter up 9% YoY to $2.2 billion.

The company’s core cash transaction margin also increased to 2.8%, a 30 basis point increase YoY,  while revenue margin for the core business improved to 8.3%, vs 7.9% in Q3 FY22.

The company said it was a strong result considering the rising interest rate environment.

“We recognise that many household budgets are under pressure, whether it be inflation or the rising cost-of-living, which means our mission and purpose has never been more relevant,” said CEO Larry Diamond.

“We aim to provide customers with a simple, fair and easy to use product that can be used everywhere and every day, creating a world where people can live fearlessly today, knowing they’re in control of tomorrow.”

Strong improvement on cash burn

Zip sees the US business as on track to exit FY23 cash EBTDA positive on a sustainable basis.

The company’s US credit loss rates of 1.2% of total transaction value (TTV) were a highlight and a significant improvement from 3.7% in Q3 FY22.

The company said this provided a solid platform for growth in FY24.

Zip announced the divestment of non-core businesses and the wind-down of its Middle East business, with an expected cash inflow of approximately $20m this half. This will neutralise the cash burn from its RoW business before the end of the financial year.

“We continued the execution of our stated strategy, to simplify our portfolio and focus on core businesses, ANZ and the US, with signed agreements to divest non-core businesses and the wind-down of our Middle East business on track,” Diamond said.

Zip also said it remains on track to deliver up to 50% Core Cash EBTDA improvement in H2 FY23, compared to the ($33.2m) result for H1 FY23.

Zip’s co-founder and global COO, Peter Gray, said in recent quarters the improvement to the company’s underlying cash burn, particularly for the core business, had been obscured by non-operating movements.

“At the end of March we had $51m in cash and liquidity, with additional cash flows from asset sales that we announced last month and the wind-down of our business in the Middle East to flow through this quarter,” he said.

“Continued execution of our strategy has seen operational cash movement for the Group (including RoW costs that will be neutralised in Q4) for the March quarter at around $10m (unaudited), which is lower than what it was in the December quarter, so Zip’s trajectory to hit our guidance on profitability is right on track.”

The company says it is well funded with sufficient available cash and liquidity, which coupled with the inflows and reduction in its RoW cash burn, will support them through to group cash EBDTA profitability during H1 FY24.

New partnerships forged

Zip continues to expand its merchant network, signing and launching with key enterprise merchants including ASICS in Australia and PlaceMakers in New Zealand during Q3 FY23.

Subsequent to the period end, the company also signed and launched with Peloton, highlighting the opportunities presented by industry consolidation for the company.

In March, Zip partnered with other Australian corporates to help launch the DV Collective to support organisations that provide assistance to individuals escaping domestic violence with the aim of helping them recover through financial and emotional independence.

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.