Motley Fool Australia

Zip share price plummets 8% despite strong FY 2020 result

illustration of laptop with down arrow and the word zip representing falling zip share price
Image source: Getty Images

The Zip Co Ltd (ASX: Z1P) share price has had a rollercoaster start to the day after the company released its full year financial results for FY 2020. At the commencement of trade, the Zip share price rose sharply to over $10 before a rapid fall saw it drop well below yesterday’s closing price of $9.65.

A year of rapid growth for Zip

Investors are today selling down the Zip share price despite the company reporting a very strong financial result for the 12 months to June 2020. Total revenue for the buy now, pay later (BNPL) provider increased by a massive 91% on the prior year to $161.0 million. Adjusted total revenue grew by 79%.

Transaction volumes generated by consumers increased by 91% during the financial year to $2.1 billion. Loan-book (receivables) for Zip increased by 73% to $1,182.0 million.

Due to the fast rise in transaction volume and receivables, cost of sales for Zip increased from $52.1 million to $107.7 million. Reported gross profit came in at 32% of portfolio income during FY 2020. This compared with 37% in the prior year.

Zip highlighted the growing number of key merchants that were added to its network over the financial year. These included: Amazon (NASDAQ: AMZN), Cotton On, Petbarn, City Chic Collective Ltd (ASX: CCX) and Pizza Hut.

New customer milestone reached in June quarter

Zip reached the 2 million customer milestone during the fourth quarter. Active customer accounts are now up by 62% on the prior year. Across Australia and New Zealand, the number of partners reached over 24,500. New Zealand saw particularly strong growth of over 100%, year on year.

Zip ended the financial year with $32.7 million in cash on its balance sheet. The company raised $61.9 million during FY 2020.

Larry Diamond, Managing Director and CEO said:

2020 has been another monumental year for Zip as we delivered a record set of financial results, whilst navigating the unprecedented impacts of COVID and transforming the business with a number of game-changing products and business acquisitions. We began FY20 with a vision to become a global BNPL player and capitalise on the increasing trends fueling the industry’s growth. The successful acquisition of PartPay led us to QuadPay, all developed on the same code base, with proven portability into multiple global markets.

Outlook for FY 2021

During FY 2021, Zip will continue to grow its customer base in Australia and New Zealand, while investing for global growth. Services will be launched in the United Kingdom in the first half of FY 2021.

Key strategic priorities include finalising the Quadplay acquisition and ramping up growth in the giant United States market. Zip Business will also be launched, and Zip will continue to roll out a range of new products to its chain of retail partners.

About the Zip share price

The Zip share price rose more than 27% yesterday on news the company had struck a new partnership agreement with eBay. At the time of writing, the Zip share price has fallen 8.39% following this morning’s update and is trading at $8.84. 

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon. 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.

Related Articles…