The Zip Co Ltd (ASX: ZIP) share price has been on a rollercoaster ride in 2022. But its future could be heavily influenced by how successful Afterpay is.
While Afterpay is no longer a listed entity on the ASX, investors can still get exposure to it through Block Inc (ASX: SQ2) shares.
Both have achieved strong market positions in Australia. But, Australia is only a small part of the global picture. Zip and Afterpay want to become global players in the buy now, pay later space.
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Where does Zip operate?
The BNPL business generates the most revenue from the ANZ region. In the fourth quarter of FY22 it generated $79.6 million of revenue in ANZ. This represents growth of 2% quarter over quarter and 30% year over year.
Zip USA saw US$48.6 million of revenue – this was down 2% quarter over quarter and up 5% year over year.
In terms of the rest of the world, Zip is operating in Canada, Mexico, South Africa, the United Arab Emirates and Saudi Arabia (Spotii), Poland and Czech Republic (Twisto), Singapore and the United Kingdom.
Zip reported that rest of the world fourth quarter revenue was flat quarter on quarter. However, revenue was up 73% year over year (pro forma).
Zip is working hard to grow internationally, but it's also trying to improve its profitability and reduce cash burn.
The company is focused on improving unit economics by achieving better credit outcomes across "credit decisioning, portfolio management and collections". In the United States it's expecting to see losses below 2% on a cohort basis before the end of the calendar year. In Australia, Zip said that previous actions are now positively impacting performance, resulting in a decrease in arrears. It said that it has experienced a "peak of losses" in Australia.
How does Afterpay plan to spoil Zip's plans?
Zip shares could be influenced in the future by Afterpay's plans.
In response to Credit Suisse analyst Timothy Chiodo regarding the new Discoveries tab in Square's Cash App, Block chair and co-founder Jack Dorsey said:
This really gets at the heart of exactly why we made the acquisition of Afterpay in the first place, is because we believe that Cash App ultimately can drive a tonne of discovery for merchants all around the world, but especially around local merchants. And not just businesses but products and services that people would otherwise not have had signal around.
We believe that Cash App ultimately becomes a place that you want to check not on a weekly basis, but every single day, because it consistently gives you a good sense of your friends and families; the businesses around you; products and services that you're interested in; offers, such as boost, all in one place.
We're rolling it out to more and more people right now. But we were really excited about this because we believe that the biggest part of Afterpay is around connecting people with commerce and transactions with local merchants but also of merchants around the world. Afterpay is our solution around that. We think there's a huge opportunity to make these connections, not just with the Afterpay merchants, but the entire Square ecosystem as well, which really speaks to our strengths in connecting these two ecosystem together.
So, Zip has its work cut out if it's going to challenge that integrated offering from Afterpay.
Zip share price snapshot
Over the past month, the Zip share price has risen by around 130%. However, since the start of 2022, Zip shares have fallen by 70%.
