Investors storm into Zip Co after update
Zip Co founder Peter Gray predicts the group will benefit from a decade of further disruption to the ailing credit card industry.
Buy now, pay later group Zip Co has said it will prosper from a decade of continuing disruption to the ailing credit card market after its share price surged 23 per cent in response to a buoyant December quarter.
Sidelined in recent years by the extraordinary growth of rival Afterpay, Zip regained some of its mojo on Wednesday, reporting an 88 per cent spike in quarterly revenue to $102m on the back of record quarterly transactions of $1.6bn, up 103 per cent.
The company boasted it had now cemented itself as a “true global BNPL leader”, and was closing in on Afterpay in Australia.
“We’re the fastest growing industry player in Australia – we were the most downloaded BNPL app in December,” Mr Gray told The Australian.
“Credit cards have dominated for so long but we can evolve and disrupt the market for the next 10 years, and the size of the prize means it’s not a winner-take-all market.
“The writing is really on the wall for the card industry – 40 per cent of our customers don’t have a credit card because newer generations are not adopting the broken (industry) model.”
Shares in Zip rocketed $1.38, or 23.1 per cent, to $7.36 on Thursday, as investors absorbed the trading update.
Over the past 12 months, the stock has climbed 87 per cent from $3.94 to $7.36 at the close of business on Thursday.
Afterpay, however, has clearly outperformed, surging 327 per cent from $34.39 to close at $149.
Mr Gray said part of the gains on Thursday could be attributed to the listing of rival BNPL group Affirm on the technology-heavy Nasdaq exchange in the US.
Affirm’s business model is more similar to Zip, offering longer term loans, yet its valuation multiple is comparable to that of Afterpay.
“Maybe we’re under-appreciated,” Mr Gray said.
“Our capital recycles more slowly than Afterpay.”
RBC Capital Markets highlighted a step down in net bad debts, stable arrears and strong customer growth in the US through its Quadpay unit, where transaction volumes jumped 217 per cent to $US518.4m ($673.1m).
Quadpay also added 915,000 customers.
“The business enters (the second half) with a growing customer and merchant base, new large merchants added in the US, and a UK rollout which already has more than 150 merchants on board,” the RBC note said.
“From a funding perspective, the recent capital raise allows an acceleration in growth investment, particularly in the US, while further funding will be needed in Australian and New Zealand as several facilities mature in the coming months.
“Overall, it was a solid update, with Quadpay the key growth driver.”
Co-founder and chief executive Larry Diamond said the quarter had delivered a “significant step change” for the company, confirming Zip’s position as one of the sector’s fastest growing players.
“Particularly exciting were the results achieved in the US, with Quadpay rapidly accelerating in the largest addressable market in BNPL,” Mr Diamond said.
Total customer numbers across the group increased to 5.7m, up 97 per cent year-on-year, while merchants using the platform jumped 73 per cent to 38,500.
The company said its new Zip UK division, launched in December, would feature in results from next quarter.
Additional reporting: Lachlan Moffet Gray
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