Zip Co’s business in Britain is under heavy scrutiny from the directors of the buy now, pay later provider, with suggestions the board has appointed a consultant to consider options for that part of the business.
Zip, led by co-founder Larry Diamond and chaired by the highly regarded Diane Smith-Gander, remains one of the worst casualties from the recent market sell-off, with its shares last week falling to 53c. The market value of Zip is now $372m.
Market experts believe that the road to recovery for Zip Co involves staging an exit from the US and Britain and focusing on its Australian operation, which is profitable.
This would be tough medicine for Zip, reducing its four operating platforms to one.
Experts also believe that the company should abandon its agreed merger with fellow BNPL business Sezzle, which was struck earlier this year when it was worth $491m.
As part of the deal, Sezzle shareholders would receive 0.98 Zip shares for each Sezzle share.
One of the challenges for the company, according to one analyst, is that Zip had diseconomies of scale. Staff numbers needed to be slashed in markets such as New Zealand.
One possibility thrown around is a sale of Zip’s Australian operation, but most believe that this is the part of the operation that must be retained in a quest to return to profitability and that it needs to exit other markets.
Zip faces a $400m-odd convertible bond payment in about two years.
In recent months, special situation funds took a close look at the company but walked away from any recapitalisation opportunity.
At the peak of the market last year when interest rates were close to zero, Zip was worth about $4.8bn.
Its shares were trading as high as $7.
Investors have now deserted the stock, amid concerns about rising interest rates intended to curb inflation.
Zip’s market value is now half the level of debt used for funding the business, excluding receivables. Total borrowings were at $2.4bn in December, with its net assets at $1.2bn.
Zip is being hit with higher funding costs, a slowing economy, looming regulation and competition in the BNPL space from Apple. The business that was founded in 2013 today operates in 14 international markets and is used by 81,800 merchants and 9.9 million customers.
It generated $604.4m of annual revenue for the six months to December, more than half of which was derived from offshore markets.
The Australia Pacific arm is cash flow-positive and as of December, Zip had $212.5m of available cash.
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