Zip Co expansion in the US driving profitability as shares surge

Shares in buy now, pay later provider Zip Co climbed after the firm unveiled strong quarterly revenues and said it was on track for profitability.

Zip Co CEO Cynthia Scott. Picture: John Feder

Shares in buy now pay later provider Zip Co surged on Monday after the company unveiled stronger than expected quarterly revenues and said it was on track for profitability this year.

The stock closed at 74c a share, a lift of 16.5 per cent, after the company reported better-than-expected December quarter revenues of $223.6m, and earnings before tax, depreciation and amortisation (EBTDA) of $9.5m.

In a statement to the exchange, the company said EBTDA for the first half of the 2024 financial year had been between $29m and $33m, turning around a $33m interim loss a year earlier.

“Today’s result reinforces that Zip is delivering as a self-sustaining business,” chief executive Cynthia Scott said.

Ms Scott called the EBTDA result “outstanding” and said it had been anchored by “a particularly strong seasonal performance in US total transaction values” as well as a “resilient” performance in its Australia and New Zealand unit, improved margins and “cost discipline”.

“We also successfully launched a new product in the Australian market – Zip Plus, announced a partnership with Google Pay in the US and welcomed new merchants to Zip with Moshtix, Amaysim, Bang & Olufsen, National Geographic and RM Williams joining the platform.”

The company said net bad debts were trending down despite shaky consumer sentiment amid the fastest interest rate hikes in generations.

“We achieved record total transaction volumes in the Americas of US$1.13bn, up 31.1 per cent versus 2Q23, driven by increased customer engagement while maintaining US credit losses at 1.3 per cent to 1.4 per cent of cohort TTV,” Ms Scott said.

Those loss rates were below its target range of between 1.5 per cent and 2 per cent.

Group bad debts had fallen to 1.74 per cent in the second quarter, down from 1.99 per cent in the same period a year earlier and 1.84 per cent in the last quarter of 2023.

In Australia, net write-offs as a percentage of receivables improved by 54 basis points compared to the first quarter, to 3.64 per cent of receivables.

“Overall, (a) strong second-quarter result relative to UBS expectations driven primarily by transaction volume growth, particularly in the US, due to strong Black Friday and Xmas trading,” UBS analysts said in a note to clients.

UBS had expected Zip to post group revenues of $200m for the quarter, while first half EBTDA was expected to come at around $4m, according to analysts polled by Visible Alpha.

“We note, however, revenue yields came in slightly softer at 8.1 per cent for the group (vs. UBS estimates of 8.3 per cent), which was a sequential slowdown from the 8.8 per cent in 1Q24,” the broker said.

Monday’s gains were still below Zip’s 52-week high of 92.5c and far from its highest of $14.5 during the pandemic in early 2021.

It is due to release its interim accounts for the first half ending December 30, on February 27.

Zip said its had strengthened its balance sheet and margins in its ANZ business had grown by 310 bps to 10.5 per cent when compared to the second quarter a year earlier.