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Afterpay competitor Zip Co delivers record results

Buy now, pay later (BNPL) shares are yet to feel the impacts of the economic downturn, reporting record results for the March quarter. Zip Co Ltd (ASX: Z1P) reported record quarterly revenues this morning, following Sezzle Inc (ASX: SZL) reporting record underlying merchant sales earlier this week

Revenues and transactions rise 

Zip reported quarterly revenue of $45 million, up 96% year-on-year, and up 17% from Q2 FY20. Quarterly transaction volumes were up 84% year-on-year to $518.7 million. Customer numbers increased to 1.95 million, up 67% year-on-year, with 194,000 customers added during the quarter. 

CEO Larry Diamond said, “despite the economic impact of COVID-19, the Zip ANZ business continues to perform strongly, with healthy customer growth, transaction volume, and a strong pipeline of new partners in the March quarter.”

More merchants added 

During the March quarter, 1,900 merchants were added, with 22,744 merchants offering the service at the end of the quarter, up 58% year-on-year. A number of major retailers went live or joined the platform including Grill’d, Nandos, Barbeques Galore, PVH Brands (Calvin Klein, Tommy Hilfiger), and City Chic Collective Ltd (ASX: CCX). 

Early April promising 

Despite the coronavirus-induced economic downturn, Zip reports that in the first 7 days of April, it has seen a 6% uplift in transaction volume compared to March, and a 15% increase compared to February. This demonstrates sustained demand for the company’s services despite the current economic outlook. 

New product launched 

Zip launched its “Shop Everywhere” product during the quarter which allows Zip customers to pay at any website globally within the Zip app using a virtual card number. This feature, combined with the current Zip wallet functionality, allows customers to pay for everyday needs such as groceries, petrol, and bills, and smooth repayments over time interest-free. According to the company, the Zip app continues to rank in the top 10 across both Apple and Google stores. 

Resilient model 

Zip believes it is uniquely placed to trade through the current economic environment, citing exposure to defensive, recession-proof sectors and online purchasing. The company has seen a shift in shopping behaviour to online as well as strong demand for everyday categories, bills, home improvements and office supplies, electronic goods and gaming. This has offset a reduction in sales across fashion and apparel, travel and leisure, personal care and hospitality. 

The average age of a Zip customer is close to 35, representing a slightly older, more financially savvy customer segment. Zip says its product, which uses an ‘account-based’ concept, offers more payment flexibility than traditional BNPL ‘pay in 4’ models, such as that utilised by Afterpay Ltd (ASX: APT). Under Zip’s model, customers can choose their repayment frequency and repay from as little as $10 a week. 

Target within reach 

Zip set itself a target of annualised transaction volumes of $2.2 billion by the end of FY20 and is tantalisingly close to achieving this. Based on Q3 volumes, Zip has an annualised transaction volume of $2.1 billion. 

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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.