Zip shares could rise on sustained revenue growth

ASX-listed buy-now-pay-later (BNPL) platform Zip Co could boost its share price with quarterly results pointing to sharp revenue growth. The company continues to pursue the goal of achieving positive cash flow in H1 FY24 by streamlining operations and cutting expenditures.

Q3 revenue sees strong growth

Zip's results for the September quarter indicate that revenue rose 19% in year-on-year (YoY) terms to $163.2 million. According to the results, Zip's revenue margin remained a healthy 7.4%.

Transaction volumes also saw robust growth, rising 15% YoY to reach $2.2 billion, while transaction numbers posted a YoY rise of 33% to reach 19.6 million.

Zip hopes that ongoing growth in revenues will help the company to achieve its goal of fast-tracking profitability.

‘We are pleased to deliver another solid set of numbers as Zip resets and moves toward positive cash flow,’ Zip Co-Founder and Global CEO Larry Diamond said.

‘During the quarter we made greater progress on our refreshed strategy to deliver sustainable growth, right-size our global cost base and accelerate our path to profitability.’

Zip maintains focus on core markets

The company is also adopting other measures to generate positive cash flow, focusing more on core operations and reducing cash burn levels.

Zip said that it would maintain a focus on sustainable growth in its core markets of Australasia and the United States, after commencing the process of closing its Singapore business in the June quarter.

As part of its renewed focus on core markets, Zip co-founder and global CEO Larry Diamond has moved to the US to serve as an on-the-ground presence for driving sustainable growth in the American market.

According to Diamond, this focused strategy has already had positive benefits for Zip’s bottom line.

‘With a more focused strategy on our core markets ANZ and the US, we substantially lowered credit losses, repaid $40m of debt, and completed an upsized $300m receivables funding transaction, demonstrating the resilience of the business model,’ Diamond said.

Spending cuts set to continue

Zip expressed confidence in its ability to reduce cash expenditures to drive the company closer to profitability.

As of 30 September 2022, Zip had $140.7 million in available cash and liquidity, which it considers sufficient to support its target of cash EBITDA profitability by H1 FY24.

‘Underlying monthly cash burn has continued to decrease and is expected to further improve,’ Zip’s September quarter report said.

‘Zip remains confident that based on its current trajectory and plan, including actions to improve cash flow, margins and costs, that its current available cash and liquidity position is sufficient to see the Company through to generating positive cash flow.’

Credit performance trends towards targets

Zip bills itself as a leading global player in the BNPL space and a provider of ‘fair and seamless solutions that simplify how people pay.’

In its latest quarterly report, Diamond touted Zip’s journey towards ‘disrupting the traditional credit card model and providing people with control of their financial lives.’

Its flagship products include the Zip Pay and Zip Money digital wallets that can be used with any of its online and offline retail partners.

Both these products enable customers to make purchases immediately before paying them off later. Zip Money provides $350 - $1,000 immediately to an everyday account on an interest-free basis once approved, while Zip Money provides a minimum three-month interest-free period for every purchase.

As a fintech company providing a consumer credit alternative, the quality of Zip’s loan book is critical to its financial health.

According to its September quarter report, Zip said that credit losses in both Australia and the United States are trending towards target levels and highlighted declines in its net bad debt levels.

Group net bad debt was 2.38% for Q1 FY23, compared to 2.69% for the final quarter of the 2022 financial year.

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