The Zip Co Ltd (ASX: Z1P) share price has tumbled to a new 52-week low on Monday.
The buy now pay later (BNPL) provider's shares dropped as much as 6.5% to $2.40 in morning trade.
Why is the Zip share price falling?
Investors have been selling down the Zip share price today after it released an update ahead of the release of its half year results later this week.
According to the release, the company expects to report record revenue of $302.2 million for the first half. This will be an increase of 89% over the prior corresponding period. This was driven by record transaction volumes and transaction numbers. These were up 93% to $4.5 billion and 147% to 36.3 million, respectively.
Management notes that these record numbers have been underpinned by customers continuing to benefit from products such as Tap and Zip, and deepening engagement through initiatives such as Zip's personalised rewards offering.
Also growing at a solid clip were its customer and merchant numbers. They have increased 74% to 9.9 million and 113% to 81,800, respectively.
Bad debts and losses
One slight disappointment that may be weighing on the Zip share price is its bad debts. Zip's net bad debts have risen to 2.6% of transaction volumes (excluding the movement in provisions). This reflects the inclusion of less mature expansion markets and a change in the external environment in the US impacting the industry. The latter includes the easing of government stimulus affecting consumer portfolios generally.
In response to this, management has adjusted its risk settings to drive down future losses. This is in line with similar actions successfully implemented in 2020 at the onset of COVID-19, which were effective in bringing losses back to levels in line with medium term targets (<2%).
Also potentially putting pressure on the Zip share price today is its expectation to post a cash EBTDA loss of $108.1 million. This was driven by the company's investment in growth, geographic expansion, and the pathway to becoming a global company.
Sezzle talks ongoing
Zip also revealed that its acquisition talks with Sezzle Inc (ASX: SZL) are ongoing.
However, once again, it warned that there is no certainty that the discussions will result in a transaction of any kind and intends to keep the market updated in accordance with its continuous disclosure obligations.
