Zip earnings preview: is the BNPL leader on track to profit?

Zip Co Limited (ASX: ZIP) release date:

Zip Company Limited will release its annual report on Thursday, 25 August 2022.

Zip Co Limited earnings expectation

Zip reported a 27% increase in quarterly revenue ending in June 2022, an increase of $160.1 million when compared to Q4 in 2021. For the full-year, Zip's revenue increased by a healthy 54% to $621.5 million and even then, the company fell short of expectation.

ZIP FY22 Earnings Key Watch

The robust results for the past financial year can be primarily attributed to its consumer sector including the United States, Australia, and New Zealand.

• Customer Growth

Based on the past four quarterly reports, Zip’s underlying business remains strong with consistent customer and transaction growth across its core markets and a solid pipeline of enterprise merchants joining the platform. As shown in the below chart, the US market remains a core market for the group, representing a significant opportunity for expansion.

• Path to profitability

This year, Zip has announced a new commitment to focus on a new strategic plan and accelerate its path to profitability. Based on the revised plan, the global financial technology provider is taking steps to reshape its international presence by closing down its Singapore business.

Management recently revealed that the company will give up Zip Business and the Pocketbook app, as well as proposed crypto and investment products. As a result, Zip has reaffirmed its target to deliver group profitability during FY24.

• Merger termination

In light of current macroeconomic and market conditions, Zip and Sezzle have mutually agreed to terminate their merger agreement and the proposed acquisition of Sezzle by Zip in July. As part of the termination, Zip needs to pay Sezzle $11 million to cover legal, accounting, and other costs associated with the transaction.

ZIP share price and technical analysis

After rising more than 286% in July, Zip's stock price has pulled back below $1 with support from the previous high at 0.981. The next key watch level will be the 100-day Simple Moving Average and 38.2% Fibonacci extension level if the price keeps sliding. On the other hand, in a scenario in which the coming report helps to recover the risk sentiment, the imminent price target is set to be around $1.052, where a critical 50% Fibonacci extension stands in place.