Zip ramps up overseas expansion, fuelled by capital raise

Zip Co is targeting 100% year-on-year growth in 2021 as it ramps up its overseas expansion, fuelled by a $150m capital raise.

Zip Co co-founder Peter Gray. Picture: David Geraghty, The Australian.

Buy now, pay later company Zip Co is targeting 100 per cent year-on-year growth next year as it ramps up its overseas expansion, fuelled by a $150m capital raise ­injection.

Announcing the capital raise on Wednesday evening, the ASX-listed Zip said the funds would primarily be used in the US to drive growth in its $5 trillion addressable market, with smaller portions allocated to the UK, Australia and new markets including South ­Africa and the EU.

A fully underwritten $120m institutional placement, priced at $5.34 a share, was completed by Thursday morning, and oversubscribed, Zip said. The placement price represented a 4.1 per cent discount to Zip’s last traded price of $5.57 on Wednesday.

Zip will also offer shareholders the opportunity to subscribe for new shares up to a maximum of $30,000 each to raise the additional $30m.

Zip’s shares surged almost 7 per cent on Wednesday ahead of the capital raise announcement.

The offer for retail shareholders is expected to open on January 4 and will be priced at the lower of the placement price and a 2 per cent discount to the five-day volume-weighted average price of Zip’s shares up to and including the closing date of the share ­purchase plan, expected to be January 13.

Zip shares closed up 1.1 per cent at $5.63 on Thursday.

“It’s a great way to finish the year and sees us really well positioned to accelerate the growth opportunity, both in the US and the broader global opportunity come 2021. So we’re geared up and ready to go,” Zip co-founder Peter Gray told The Australian as he outlined the expansion plans.

“[The recent growth in the US] is a great platform for next year. Obviously, the US is the real market in terms of global scale, with $5 trillion worth of addressable retail spend and very early stages of market maturity.

“So we intend to support that growth and lean in with a focus on customer acquisition and app usage, which is a little bit of a differentiator between them and some of the other operators in the market.”

Zip announced the acquisition of US-based QuadPay in June for $403m and completed the deal at the start of September. “We were extremely pleased to complete the acquisition of QuadPay earlier this year, and are very impressed with the way they’ve accelerated the growth in the last two or three months,” Mr Gray said.

“They acquired over 450,000 new customers in November, which was a phenomenal result. And their investment into the app is really delivering better outcomes. What you can see from the data is that they’re the fastest-growing ‘buy now, pay later’ player in the market. So it’s very encouraging and their approach to technology and partnerships is very exciting.”

In its November trading update, Zip recorded more than 100 per cent year-on-year growth in customers and transaction volume, driven by the US segment. The BNPL player is targeting similar growth this year and has already seen a healthy December bump in the run-up to Christmas.

“The November numbers were a real step change on the previous month. And that has continued into December, where the results are significant increases in November again,” Mr Gray said.

“[Next year] we’ll be looking to be in play in a number of additional jurisdictions to the five that we’re currently trading in. So it’ll be more 100 per cent year-on-year growth, more millions of customers and more jurisdictions.”

In the UK, Zip would leverage heavily on technology and product as it looks to catch up with its peers, he said. It was also hoping the use of virtual card technology, which it currently uses in Australia and the US, would accelerate consumer acceptance in an increasingly crowded market.

Mr Gray also dismissed concerns of a bubble in tech stocks, including in the BNPL sector, saying investors understood the opportunity in front of them. “There’s a shift away from banks,” he said. “So I think they are really understanding the relationship we have with our customers and what that can mean over the longer term.”