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Zebit Inc (ASX:ZBT) share price tumbles lower on Q3 update

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The release of a third quarter update on Thursday wasn’t enough to stop the Zebit Inc CDI (ASX: ZBT) share price from dropping lower with the market.

The U.S. based ecommerce company’s shares dropped 3.5% to $1.10.

This means the Zebit share price is now trading 30% lower than its IPO price of $1.58.

What is Zebit?

Zebit is a newly listed ecommerce platform with a built-in buy now, pay later offering (BNPL).

It has a focus on the large (and growing) proportion of the US population (est. 100 million) that is considered to be credit challenged. 

It aims to provide affordable credit for consumers that wouldn’t qualify for credit cards or even for regular BNPL platforms like Afterpay Limited (ASX: APT) or Sezzle Inc (ASX: SZL).

How did Zebit perform in the third quarter?

For the three months ended 30 September, Zebit reported revenue of US$15.35 million and a gross margin of 28.2%.

No figures were provided for the prior corresponding period to compare against. Though, judging by its commentary, I suspect its revenue was down on the third quarter of FY 2019.

Management advised that it “deliberately constrained demand and was much more selective in its underwriting criteria related to customer acquisition and taking new orders during Q3 FY 2020.”

One positive, though, was that these operational tactics resulted in a heavier mix of orders from tenured customers on the platform. This increased the overall quality of its booked revenue.

Which may explain why the third quarter was the first positive EBITDA quarter since incorporation. Though, this didn’t quite lead to its operations being fully profitable. On the bottom line, Zebit posted a net loss after tax of US$0.33 million.

The company also booked a bad debt reserve of 6.26%. This is the proportion of bad debt Zebit expects to take for historical outstanding sales.

What now?

Management notes that in September the company decided to resume operating on a pre COVID-19 business-as-usual basis. It explained that it decided to do this because of the continuing development of its proprietary credit decision models and predictive analytics.

It advised that the switch resulted in an acceleration in orders and new registered users during the month of September.

This is just in time for the company’s busiest quarter. Zebit CEO and Co-Founder, Marc Schneider commented: “H2 has historically accounted for about 65% of Zebit’s total annual revenue, with Q4 being the most material quarter of Zebit’s fiscal year. Q4 contains well known key sales events for consumers, namely the Black Friday / Cyber Monday sales event as well as Christmas trading.”

“The remainder of 2020 will be a busy time for Zebit as we deploy the IPO capital and continue to grow our registered user base across the U.S. and continue to deliver upon our IPO objectives in the most significant quarter of Zebit’s fiscal year,” Mr Schneider concluded.

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Returns as of 6th October 2020

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Sezzle Inc. 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.

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