Zip share price falls even as FY20 revenues surge 91%

Zip share price falls, growth remains strong

Capital markets are built and destroyed by expectations. Maybe nowhere right now is this idea better illustrated that by Australia’s buy now pay later (BNPL) sector.

Expectations for the fledgling sector are indeed high – as BNPL companies see their share prices and underlying business metrics seemingly exponentially tick skyward.

Growth or not, with many of these company’s unlikely to make a profit in the short-term, investors have turned to other metrics, such as revenue and user growth figures, to value them. While not uncommon to value growth-oriented tech companies on the basis of their revenue outlook – when these valuations become stretched – it’s not uncommon to see sudden and sharp sell-offs.

Demonstrating those points, Australia’s second largest buy now pay later darling Zip (Z1P) – though posting a growthy set of quarterly results on Wednesday – still saw its stock punished by investors. Interestingly, while the stock opened higher and hit an intraday high of $7.540 per share, by 1.36PM (Canberra time) Zip traded well off those highs, dipping to around $6.30 per share.

At the time of publishing, Zip traded at $6.65 per share (-5.54%).

Quarterly results in focus

Share price gyrations, the company reported robust growth across all of its key metrics as part of today’s fourth quarter results release.

Here, Zip recorded full-year FY20 revenues of $161.2 million, representing a year-over-year increase of 91%; against Q4 revenue of $46.4 million, up 72% on a year-over-year basis.

Annualised transaction volumes also came in significantly higher on a year-over-year basis, exceeding the company's previously set target – reaching $2.3 billion, representing an increase of 120%.

Zip's customers now stand at 2.1 million, up 197 thousand in the last quarter alone, while there are now a total of 24.5 thousand merchants on the Zip platform, it was noted.

A key argument of BNPL bears has been centred on the likelihood of these company’s seeing their credit performance deteriorate as a result of the coronavirus pandemic. On this front, the company said it was 'significantly outperforming the market,' noting that it boasted 'strong credit performance notwithstanding COVID-19 with net bad debts of 2.24% at the end of Q4.’

Further illustrating this point, between March and June, Zip’s monthly arrears fell from 1.55% to 1.33%. The company described this result as ‘outstanding’ given the current operating conditions.

Elsewhere, the company reported that Quadpay, which Zip acquired in an all scrip deal during June; in the fourth quarter delivered $233 million in total transaction value (TTV), $16.4 million in revenue. Quadpay had 1.8 million customers at the time of writing.

Looking forward, Zip said that once the acquisition has been completely finalised, the Group would have combined TTV of $3.2 billion against annualised revenues of $252 million and close to 4 million customers.

Speaking of these results, Zip’s Managing Director and Chief Executive Officer, Larry Diamond said that while the buy now pay later business model was tested during the coronavirus period, it ultimately has ‘proved extremely resilient,’ up to this point.

'Our product differentiation, strong proprietary credit platform and penetration into defensive, everyday spend categories delivered in spades.’

Mr Diamond went on to say that:

'We continue to believe the credit card model is fundamentally broke with customers demanding flexible, responsible, interest free alternatives - the flight to BNPL is a global trend.'

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