Zip share price lifts despite $1 billion loss for FY22

Share in the BNPL provider are in the green despite major one-off losses. Here's what the company reported.

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Key points

  • Zip Co reported some challenging losses in its full-year earnings for FY22 today
  • Losses mostly stemmed from goodwill and impairments
  • The BNPL provider still aims to become profitable by FY24

The Zip Co Ltd (ASX: ZIP) share price is in the green today after the company announced its full-year financial results for FY22.

Shares in the ASX buy now, pay later (BNPL) company are trading 1.8% higher at 99 cents at the time of writing, after touching an intraday high of $1.06 mid-morning.

Let's go over the highlights from the company's full-year report for the period ending 30 June 2022.

What did Zip report?

  • Loss from ordinary activities after income tax up 63% year-over-year (YoY) to $1.10 billion
  • Record revenue up 57% YoY to $620 million
  • Record transaction volume (TTV) up 51% YoY to $8.7 billion
  • Record transaction numbers up 80% YoY to $74.3 million
  • Group cash earnings before taxes, depreciation, and amortisation at a $207 million loss
  • Cash and liquidity of $279 million

When Zip's losses are adjusted to account for non-recurring items, its adjusted loss before income tax was $256.5 million in FY22. The company's largest once-off expense was $821.1 million in impairment of goodwill and intangibles, followed by a $20.3 million cost for global rebranding.

The expansion of its goodwill and impairment item losses were likely due to the changes in the fair market value and recorded costs of the company's numerous acquisitions in FY21 and FY22.

During the reporting period, Zip acquired stakes in the companies Spotii, Central European BNPL, PayFlex, and Hemenal Finansman.

To help reduce costs in the future, Zip advised it decided to discontinue operations in Singapore and the United Kingdom and stop providing the Group's Pocketbook, Trade, and Trade Plus products.

What else happened in FY22?

Cost of sales grew faster than revenue during the reporting period, growing 75.8% for a $469 million loss. This number included, among other items, bad debts and expected credit losses of $276.1 million, which grew 110%.

The company saw the greatest improvement in its the United States operating segment, with revenues growing 57% YoY to $603.1 million and transaction volumes up 67% to $4.09 billion.

Zip welcomed 11.4 million new customers, growing 56% YoY to 11.4 million, and 90.7 thousand merchants, growing 77% YoY.

What did management say?

Zip co-founder and global CEO Larry Diamond said:

In our half-year results, we acknowledged changes in the external environment were quicker and more severe than first anticipated. Against this backdrop, we changed strategy and shifted to delivering sustainable growth, right-sizing our global cost base and accelerating the path to profitability.

To that end, I want to share that we have already delivered on a number of initiatives to reduce cash burn, manage credit losses and improve unit economics. Our ability to pivot and adapt to the new world, showcases the resilience and viability of our business model as we focus on the opportunity ahead in FY23.

What's next?

Zip's end goal is to accelerate toward EBTDA profitability in FY24. It plans to do this by pursuing several avenues.

In its core markets, these include launching enterprise markets with top US retailers, enhancing its rewards program, launching new products, and innovating its existing product line.

A focus on reducing credit losses is also a priority, and it plans to accomplish this through enhanced credit management and streamlining repayments and collections.

Other initiatives will include improving cost base and margins by reducing its operating cost on technology and to third parties.

Zip share price snapshot

It's been a challenging period for the Zip share price, down 86% in the past 12 months and 77.3% year to date. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down around 7% since the start of 2022.

The company's market capitalisation is $681 million based on today's price.

Motley Fool contributor Matthew Farley 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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