Australian buy now, pay later provider Zip reveals $1 billion loss
It has been forced to close down part of its business and had to write off almost $230 million owed to the company.
Australian buy now, pay later provider Zip has haemorrhaged money from its operations revealing a whopping $1 billion loss for the past financial year.
The Afterpay rival announced it was closing its United Kingdom business as part of a move to stem its losses.
It comes as experts predicted potential “carnage” for the BNPL sector this year as providers burn through cash, bad debts balloon and customers retreat from using the service – a model which they say isn’t sustainable.
Zip’s huge losses, including a big jump in its bad debts as well as higher operating costs, reflects a chilling warning from experts that BNPL providers are at risk of becoming loss leaders and wholly unprofitable.
The company’s bad debts, which it was forced to write off, more than doubled from $82.5 million to $228.9 million, but the company said it has tightened lending and believes these debts have peaked.
Stream more business news live & on demand with Flash. 25+ news channels in 1 place. New to Flash? Try 1 month free. Offer ends 31 October, 2022 >
It also reported an $821 million loss of its goodwill and intangible assets in the United States, UK, Europe and Middle East, with the company now running a strategic review of its overseas operations.
Europe and the Middle East are burning through about $50 million a year, its results showed.
Zip’s co-founder Peter Gray said the overseas markets had a slower growth rate causing their value to plunge, while rising interest rates had also lowered the value of its US business.
The BNPL player’s revenue rose to $620 million from $393.9 million last year, but it acknowledged that tough economic conditions would see consumers pull back on discretionary spending.
But Mr Gray said the company would cope with the downturn as customers have increasingly used the service for everyday items such as petrol, groceries and bills.
“There’s been a marginal decrease in certain discretionary spending categories. Arguably, we’re very well-placed in a market like Australia – we have an account-based concept that delivers a significant percentage of our volume from every day spend categories,” he told the Australian Financial Review.
“The concept allows consumers to pay for their bills, groceries, fuel and the utilisation has increased significantly over the course of this calendar year.
“Our broad industry vertical penetration off the back of our product construct is really well-placed to again be even more meaningful to consumers as they manage their budget through a rising cost environment.”
Earlier this year, the company announced it was closing its money management app that it acquired for $7.5 million, affecting 800,000 users.
The company has also taken a battering on the stock market this year too with its shares plummeting an extraordinary 76 per cent this year.
Yet, Zip has declared that it could achieve profitability in the first half of 2024.
‘Failed too many’: Insurers lashed on floods
A parliamentary inquiry into the response of insurers to severe floods in several states in 2022 had let down many victims by failing to meet their obligations.
Iconic Aussie chain faces $2.9m dispute
One of Australia’s best known chains has come under further fire as a bitter dispute emerges.
Fish discovered in 1988 could decimate town
The protection of a rare species of fish is threatening to decimate an entire town as powerful environmental groups push for an industry to be shut down.