Zip (ASX:Z1P) share price surges 8% higher on explosive Q2 growth

The Zip Co Ltd (ASX:Z1P) share price is surging higher on Thursday following the release of its second quarter update…

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The Zip Co Ltd (ASX: Z1P) share price has been among the best performers this morning. This follows the release of its second quarter update.

In early trade the buy now pay later provider's shares are up 8% to $6.47.

How did Zip perform in the second quarter?

As the Zip share price gain would indicate, the company was a very strong performer again during the second quarter. This was particularly the case in the United States. In fact, management notes that it is one of the fastest growing buy now pay later players in the massive market.

According to the release, Zip delivered a 103% increase in transaction volume during the second quarter to a record of $1.6 billion. From this, the company generated a 88% increase in quarterly revenue to $102 million.

This followed a very strong performance in December, which saw Zip achieve monthly transaction volume of $628.4 million. This was a 104% increase over the same period last year and annualises to transaction value of over $7.5 billion.

What were the drivers of Zip's growth?

The main driver of Zip's growth during the quarter was its US operations. The QuadPay business recorded a 217% increase in transaction volume to $673.1 million. This was thanks largely to a 180% lift in customer numbers to 3.2 million and a 655% jump in merchants to 8,400.

This was supported by a 60% increase in transaction value in the ANZ market to $908.7 million. ANZ customer numbers grew 39% over the prior corresponding period to 2.5 million and merchants lifted 43% to 30,100.

Pleasingly, Zip reported a reduction in its net bad debts in the ANZ market. Its net bad debts decreased from 2.43% to 1.93% over the three months. This was in line with management's expectations. Monthly arrears in the ANZ market remain steady at 0.95%.

However, no figures were provided for the USA business or the company overall.

Management commentary

Zip's Managing Director and CEO, Larry Diamond, commented: "We are extremely pleased to deliver another exceptional set of numbers with the quarter really delivering a significant step change for the Company, confirming our position as one of the fastest growing players in the sector."

"A number of strategic initiatives were delivered during the quarter, in line with our mission to become the first payment choice everywhere, every day, and we are extremely well placed to continue this momentum into 2021 as the global shift away from the broken credit card model continues. Particularly exciting were the results achieved in the US with Quadpay rapidly accelerating in the largest addressable market for BNPL," he concluded.

James Mickleboro 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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