Afterpay rival Zip Co disappoints with higher bad debt expenses

Afterpay rival Zip Co has booked a disappointing full-year result with higher bad debt expenses and seemingly more to come.

Buy now pay later company Zip Co has disappointed the market with a near-doubling in its full-year net loss and higher bad debt expenses.

The Afterpay rival reported a revenue jump of 91 per cent in 2019-20, but its net loss totalled $20.6 million, up from $11.1 million for the previous financial year.

Bad and doubtful debts rose to $53.7 million, prompting Ord Minnett to say the result was below expectations.

“The higher bad debt expense may drag into FY21,” senior research analyst Phillip Chippindale said.

Royal Bank of Canada analyst Tim Piper said the expense of bad debt written off last financial year was 11 per cent higher than expected.

Expected losses from bad debts for the current fiscal year was also above expectations, he said.

After the coronavirus pandemic emerged, the company slashed its workforce by 20 per cent, cut capital spending and executive pay and delayed its UK launch.

But as the impact of the health crisis became clearer in the June quarter, Zip reinstated some capital spending projects and says it has “repositioned itself for growth” this financial year, with the UK debut slated for the first half.

ZipMoney co-founder Larry Diamond says 2019-20 was a monumental year for the buy now pay later company. Source: Supplied.

Zip shares soared 27.5 per cent on Wednesday when it announced a partnership with eBay, giving it access to the online marketplace’s 40,000 Australian small-to-medium enterprise sellers.

The deal builds on the stable of well-known brands on Zip’s platform, including Bunnings, Amazon, City Chic, Grill’d, Pizza Hut, Nutrimetics, Chemist Warehouse, Cotton On, Petbarn, Tupperware and Carpet Court.

Mr Chippindale noted the company also sought to further expand its offering into everyday categories and looked to increase its tier 1 merchants.

Shares in Zip, which now has more than 2.1 million customers, were down almost 2 per cent in afternoon trade at $9.46.

Ord Minnett has a $6.45 valuation on the stock, while RBC has a $7 price target.

“When you look at Zip and Afterpay, and the way that investors or traders are reacting to the results, we have to keep in mind how the companies have moved recently,” CommSec analyst Steve Daghlian said.

“Both Zip and Afterpay have tripled in price this year. They’ve both been sitting at record highs in the last couple of days.”