Zip share price up 5% following Q4 update

Zip has released its quarterly update…

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Key points

  • Zip shares are rising on Thursday following the release of the company's quarterly update
  • Zip delivered growth across the business compared to a year ago
  • However, its revenue has fallen short of one broker's expectations

The Zip Co Ltd (ASX: ZIP) share price is pushing higher following the release of the company's quarterly update.

At the time of writing, the buy now pay later (BNPL) provider's shares are up 5% to 70 cents.

Zip share price higher on Q4 update

Here's s summary of the company's performance during the quarter:

  • Group quarterly revenue up 27% to $160.1 million
  • Revenue margin down 30 basis points quarter on quarter to 7.5%
  • Customer numbers up 5.3% quarter on quarter to 12 million
  • Quarterly transaction volume up 20% year on year to $2.2 billion
  • Transaction numbers up 37% year on year to 19.4 million
  • Cash transaction margin up 10 basis points quarter on quarter to 2.4%
  • ANZ net bad debts up 42 basis points quarter on quarter to 3.82%

What happened during the quarter?

During the three months ended 30 June, Zip reported a 27% increase in quarterly revenue over the prior corresponding period to $160.1 million.

Management advised that this reflects strong results across its consumer operations in the United States, Australia, New Zealand and Rest of World despite growth being tempered by a deterioration in consumer sentiment and adjustments to risk settings.

Though, it is worth noting that quarter on quarter US revenue fell 2%, ANZ revenue rose a modest 2%, and Rest of the World revenue was flat at just $8.5 million.

This means that for the full-year, Zip delivered revenue of approximately $621.5 million. And while this is a healthy 54% increase year on year, it is short of what some analysts were expecting.

For example, a recent note out of Macquarie reveals that its analysts were expecting Zip to report a 59.9% increase in revenue to $644.24 million for FY 2022. So, the company has missed on the top line with this update.

Global review

Zip has revealed that it is taking steps to right size its global cost base and accelerate the company's path to profitability. This includes closing down its Singapore business and looking at options for other Rest of the World businesses including the UK.

In addition, as part of the review, the company has looked at the goodwill against the Spotti, Twisto and Quadpay assets. It is now assessing the need to take an impairment charge against the carrying value of goodwill of these assets in its FY 2022 accounts.

Management also revealed that it will be closing down Zip Business and the Pocketbook app, as well putting its planned crypto and investment products on the back-burner.

Management commentary

Zip's co-founder and global CEO, Larry Diamond, was pleased with the quarter. He said:

We are pleased to announce another solid set of results across our key operating metrics in Q4, demonstrating the continued strength of the Zip business. All this was done whilst balancing and implementing our updated financial strategy to fast-track profitability, by reducing our global cost base, and refocusing our capital and efforts on core products and core markets.

Diamond also commented on the decision to terminate the merger with Sezzle Inc (ASX: SZL), which he and the Zip board believe was in the best interests of shareholders. Particularly as management expects it to allow the company to reach profitability earlier than planned. He explained:

Given the significant and swift changes to the broader macro and capital environment since signing, Sezzle and Zip mutually agreed to terminate the proposed transaction, both businesses opting to focus on their core strategy. As Directors we saw this to be in the best interests of shareholders – we wish Charlie and the Sezzle team all the best in FY23.

This coupled with recent decisions made, as well as ongoing strategic initiatives, will see the group reach cash EBTDA profitability earlier than anticipated.

Zip's global CEO remains optimistic on the future of the company despite the market's bleak view on the BNPL industry. He concluded:

As we celebrate our 9th birthday, we reflect on the incredible growth, from start-up pioneering the role of BNPL, to a publicly listed, global business with over 12m customers. Our role as a financial services technology provider is becoming even more crucial in the current climate as we support our customers and merchant partners through this inflationary period. The resilience of Zip and its business model has us well placed to thrive through this next stage of the journey and even though we are nine years in, it genuinely feels like we are only getting started!

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. has positions in 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 Scott Phillips.

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