Zip Co backs out of Singapore market, crypto products

The buy now, pay later provider’s shares are up more than 15 per cent despite its quarterly financials missing analyst expectations.

Zip Co chief executive Larry Diamond, left, and co-founder Peter Gray. Picture: Zip

Beleaguered buy now, pay later provider Zip has shrugged off its aborted merger with Sezzle, with its shares climbing more than 15 per cent after it lifted both its revenue and total transaction volume in its latest quarterly update.

In its results on Thursday – the first since it announced it was not going ahead with a tie-up with rival BNPL player Sezzle – Zip said it had posted strong results across its Australia, New Zealand, US and ‘rest of world’ segments, despite also announcing it would exit the Singapore market immediately and close down its Zip Business unit and Pocketbook app.

“In line with its strategic objective to focus on the core markets of ANZ and the US, this quarter Zip has continued to make changes and decisions to right-size its global footprint and reduce group cash burn,” the company told investors on Thursday, adding it would ‘deprioritise’ its planned crypto and investment products.

Group quarterly revenue was up 27 per cent year-on-year to $160.1m for the three months ending June 30, while quarterly transaction volume was up 20 per cent year-on-year to $2.2bn.

Total transaction numbers were up 37 per cent year-on-year to 19.4 million while revenue margin was down 30 basis points quarter-on-quarter to 7.5 per cent. For the full year Zip posted revenue of $621.5m, up 54 per cent, but below Macquarie analyst estimates of $644.2m.

Investors welcomed the results, sending Zip shares up 15.7 per cent to 76 cents. Its shares are still down 90 per cent over the past 12 months.

Zip co-founder and global chief executive Larry Diamond said in a statement that the results were strong amid a broader deterioration in consumer sentiment and adjustments to risk settings.

“We are pleased to announce another solid set of results across our key operating metrics in Q4, demonstrating the continued strength of the Zip business,” Mr Diamond said in a statement.

“All this was done while balancing and implementing our updated financial strategy to fast-track profitability, by reducing our global cost base, and refocusing our capital and efforts on core products and core markets.

Mr Diamond said Zip management expect the nixed Sezzle deal to allow his company to reach profitability earlier than planned.

“Given the significant and swift changes to the broader macro and capital environment since signing, Sezzle and Zip mutually agreed to terminate the proposed transaction, both businesses opting to focus on their core strategy,” he said.

Labor frontbencher Stephen Jones has flagged that BNPL companies will be treated as credit providers. Picture: NCA Newswire/Gary Ramage.

“As directors we saw this to be in the best interests of shareholders – we wish Charlie and the Sezzle team all the best in FY23.”

Zip is one year out from its 10th birthday and Mr Diamond said his company’s business model – which has been particularly controversial in recent weeks amid looming regulation from the new federal government and falling sector-wide share prices – would prove resilient.

“As we celebrate our ninth birthday, we reflect on the incredible growth, from start-up pioneering the role of BNPL, to a publicly listed, global business with over 12m customers,” Mr Diamond said.

“Our role as a financial services technology provider is becoming even more crucial in the current climate as we support our customers and merchant partners through this inflationary period. The resilience of Zip and its business model has us well placed to thrive through this next stage of the journey and even though we are nine years in, it genuinely feels like we are only getting started!”

Zip said its $278.6m in cash and liquidity “is expected to be sufficient reserves to support the company through to cash EBITDA [earnings before interest, tax, depreciation and amortisation] profitability”.

While Mr Diamond described the results as strong, they were below some analyst expectations. Royal Bank of Canada analyst Wei-Weng Chen said the results were a rebound from a soft Q3 but still sat below his estimates.

“A key focus for investors will be the rise in bad debts in ANZ (3.8 per cent) for the quarter,” he wrote. “We will continue to watch how credit controls will impact the business’s ability to grow total transaction volume.”

Zip and Sezzle earlier this month confirmed their planned merger, announced in February, would not go ahead, with both parties agreeing to dump the deal amid challenging market conditions and a darkening outlook.

The decision to walk away – which will see Zip cough up $US11m ($16.35m) in break fees – was the latest BNPL tie-up to fall over in a matter of weeks, with the proposed sale of Humm consumer finance to Latitude abandoned in June.

Meanwhile Europe’s former BNPL darling, Klarna, has just seen its value slashed by 85 per cent to $US6.7bn on the back of its latest funding round. The value of Commonwealth Bank’s holding in the Swedish company has dived by about $2bn.