Zip Co books billion-dollar loss as buy now, pay later loses its fizz

Zip Co has vowed to further reduce how much cash it is burning through in its overseas operations, after announcing the closure of its United Kingdom business as it delivered a full-year loss of $1 billion.

Zip, a key rival to Afterpay, on Thursday revealed further details about its plan to move into profitability, as investors turned their back on buy now, pay later (BNPL) businesses in the past year.

Zip Co co-founder Peter Gray: “All our overseas businesses have been written down.”Credit: Rhett Wyman/AFR

As BNPL shares prices have plunged - a trend seen across loss-making tech companies - Zip has responded by slashing costs and ditching peripheral overseas assets, to instead focus on its core markets in Australia, New Zealand and the US.

Following the plunge in BNPL valuations, Zip’s bottom line was hit by $821 million impairments of its goodwill and intangible assets in the United States, UK, Europe and Middle East. This pushed Zip to post a $1 billion statutory loss, with the company’s results also weighed down by sharply higher bad debts and operating costs.

Zip regards cash earnings before tax, depreciation and amortisation (EBTDA) as a better reflection of the cash needed to run the business. By this measure, it made a smaller loss of $207 million, and it said it would be profitable on this basis during the first half of 2024.

Co-founder Peter Gray said the carrying value of some overseas businesses had been written down because the company was now factoring in slower growth rates in some markets, while rising interest rates have also lowered the value of Zip’s US business.

“Like many other companies who’ve adjusted goodwill or carrying values of their assets or business that they’ve acquired, we’ve done the same. All our overseas businesses have been written down,” Gray told this masthead.

Gray said he expected Zip’s statutory loss to narrow over the next year, as the write-downs were in part a move to “clear the decks.”

“The adjustments that we’ve taken - we’ve obviously gone deep so that we wouldn’t be faced with a similar situation next year,” he said.

As well as closing its UK business, Zip on Thursday said it was running a strategic review of businesses in Europe and the Middle East that it bought last year. These businesses are currently burning through about $50 million a year, and the review aims to “neutralise” cash-burn in these markets by 2024.

Zip’s revenue - which jumped to $620 million, from $393.9 million last year, was released last month in a quarterly update. Its net bad debts that were written off more than doubled from $82.5 million to $228.9 million, and the company believes its bad debts have peaked after moves to tighten lending.

Zip shares, which have plunged 86 per cent in the past year, were 1.75 per cent higher at 98c in afternoon trade.

Jarden analyst Elise Kennedy highlighted growth in Zip’s EBITDA in its Australian business, which she said showed BNPL businesses could be profitable when they had scale.

“In our view, the payments companies need to show their ability to strip back costs, focus on their core markets, and show the market their pathway to at least breakeven,” Kennedy said in a note to clients.

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