Zip (ASX:Z1P) share price sinks 6% following Q4 update

This BNPL provider's shares are sinking on Thursday…

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The Zip Co Ltd (ASX: Z1P) share price is under pressure on Thursday morning.

In morning trade, the buy now pay later (BNPL) provider's shares are down 6% to $7.13.

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Image Source: Getty Images

Why is the Zip share price tumbling?

The catalyst for the weakness in the Zip share price on Thursday has been the release of its quarterly update.

According to the release, Zip delivered another record performance during the fourth quarter of FY 2021. The company reported a 116% year on year increase in quarterly total transaction volume (TTV) to $1.8 billion and a 104% increase in quarterly revenue to $129.9 million. Positively, this was driven by record monthly revenue of $44.8 million in June, which annualises at $537.2 million.

The strongest growth was achieved in the United States with its QuadPay business reporting a 107% year on year increase in revenue to $64.3 million. This was supported by a 39% lift in revenue in the ANZ and a modest contribution by its fledgling UK business.

However, whilst this was strong in comparison to the prior period, its growth is slowing quarter on quarter. Revenue may have doubled year on year but it was only up 13% since the third quarter. And while this is a growth rate that many companies would be envious of, not all companies trade on such sky high multiples.

Also potentially weighing on the Zip share price was its revenue to TTV ratio. That stood at 7.2% at the end of the fourth quarter, down from 7.65% in FY 2020.

What were the drivers of its growth?

Driving Zip's growth in the fourth quarter were further increases in transactions, customer numbers, and merchants on its platform.

Zip revealed a 230% year on year increase in transaction numbers to 14.2 million for the three months, an 87% lift in customer numbers to 7.3 million, and an 84% rise in merchants to 51,300.

In respect to customer numbers, Zip now has 4.4 million in the United States, 2.8 million in the ANZ region, and approximately 70,000 in the UK.

It will be looking to add to these customer numbers in the first quarter of FY 2022 following launches in Canada and Mexico. Management notes that the Canadian market represents a US$43.6 billion ecommerce market, whereas Mexico has an ecommerce market estimated to be worth US$13.8 billion.

It is also expecting to complete the acquisition of Twisto Payments during the first quarter and Twisto during the second. This will expand its offering onto mainland Europe and into the Middle East.

Another change that is coming is the company's QuadPay business will be rebranded as Zip in August. This is part of its plan to unite its operations under a single, globally recognisable brand.

Management commentary

Zip's Managing Director and Global CEO, Larry Diamond, said: "Another outstanding set of results, including over 100% YoY growth in both revenue and TTV for the group, with record numbers delivered across the business in all regions."

"In addition to the very strong financial performance, we continued executing on our global BNPL expansion strategy across both the developed and emerging markets. We are now a truly global player with a presence in 12 markets, and this is a real point of difference as we target global retailers and fulfill our mission to become the first payment choice everywhere, every day," he added.

Despite today's decline, the Zip share price is still up an impressive 27% in 2021.

Motley Fool contributor 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 and has recommended 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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