Zip share price plunges following record Q4 update

Zip (ASX: Z1P) – a fast growing, ASX-listed buy now pay later company – released another set of impressive quarterly (Q4) results on Thursday, 22 July.

Overall, the company’s management honed in on the strength of these results – highlighting record monthly and quarterly revenues, as well as record quarterly transaction volumes.

Enthusiastically commenting on these results, Zip's MD and Global CEO, Larry Diamond said:

'We are now a truly global player with a presence in 12 markets, and this is a real point of difference as we target global retailers and fulfill our mission to become the first payment choice everywhere, every day.'

Zip share price falls

Despite strong appearances, the market shrugged off these results: the stock was down 3.83% within the first half hour of trade, hovering around the $7.29 per share mark. By noon the stock was down 6.00%.

Does the market think Zip’s valuation is stretched? Are they worried about profitability? Or has the stock simply lost its lustre – what is the point of growth, without profits?

Whatever the case, the stock is down today and down close to 12% for the month.

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Q4 highlights

Centrally, it was a strong quarter for Zip, with its key metrics climbing across the board.

In the fourth quarter transaction volumes continued to snowball, reaching $1,764 million, implying a year-over-year growth rate of 116%. The US continues to be the standout region here, with total transaction volumes coming in at $857 million, up 247% year-on-year. That's just behind Australia and New Zealand (ANZ), with transaction volumes of $893.5 million.

From a revenue perspective that picture reverses somewhat, with the US overtaking ANZ in terms of group revenue contribution. US revenue came in at $64.3 million in Q4, up 280% year-on-year, overtaking ANZ revenue of $61.4 million, up just 39%. UK revenue was negligible, and group revenue was $126.7 million in the fourth quarter, up 107% – undoubtably boosted by the growing contributions from the states.

Commenting on the revenue performance, analysts from RBC said:

‘The revenue yield also saw an unusual lift higher, apart from potential seasonal impacts; this may suggest that much more growth came from in-app purchases in the quarter compared to integrated merchants,’

Zip remains well funded to expand in the US, increasing its debt facility with Goldman Sachs during the quarter to accommodate transaction volumes in excess of US$5 billion.

Other points of interest

The other key ingredient in Zip’s flywheel – merchants and customers – continued to grow in the fourth quarter.

Again, the growth trend was skewed to the US, with US customers reaching 4.4 million (+144% year-on-year). That figure now stands out well ahead of ANZ customer totals and growth positioning, currently at 2.8 million.

Total merchants on the platform rose 84% in the quarter to 51.3 thousand.

Elsewhere, from a credit perspective, Zip saw its arrears creep higher, coming in at 1.78% while net bad debts came in at 1.82%.

Commenting on that, analysts from RBC said: ‘ANZ customer metrics positive and credit indicators stable; however, the arrears rate did rise likely indicating higher net bad debts to come.’

More to come.