The Zip Co Ltd (ASX: ZIP) share price is charging higher in morning trade.
At the time of writing, the buy now, pay later (BNPL) provider's shares are up 13% to 72.5 cents.
Why is the Zip share price charging higher?
The catalyst for the rise in the Zip share price today has been the release of the company's first-quarter update.
Here's how it performed compared to the prior corresponding period:
- Transaction volume up 15% to $2.2 billion
- Transaction numbers up 33% to 19.6 million
- Revenue up 19% to $163.2 million
- Cash transaction margin steady at 2.2%
- Customer numbers up 50% to 12 million
- Active customers up 17% to 7.4 million
- Merchants up 70% to 94,100
What happened during the quarter?
For the three months ended 30 September, Zip reported a 15% increase in transaction volume to $2.2 billion and a 19% lift in revenue to $163.2 million. The latter reflects flat year-on-year revenue of $66.9 million in the US despite currency tailwinds and a 29% increase in ANZ revenue to $83 million.
Zip's growth was underpinned by a 17% increase in active customers to 7.4 million, a 33% jump in transaction numbers to 19.6 billion, and a steady revenue margin of 7.4%.
As you might have noticed above, Zip has now split its customer numbers into two groups. An active customer is one that has transacted within the last 12 months, whereas a regular customer is one that has an open account. They may not have transacted in the last 12 months, but they still have the ability to do so.
Another positive is that the Zip US business saw credit loss rates decrease to 2.4% of total transaction value from 2.7% in the previous quarter. It also exited the quarter with an expected loss rate of below 2% for the September cohort, in line with target levels.
Finally, at the end of September, Zip had available cash and liquidity of $140.7 million. Management believes this will be sufficient to support the company through to cash earnings before interest, tax, depreciation, and amortisation (EBITDA) profitability.
Management commentary
Zip's co-founder and Global CEO Larry Diamond was pleased with the progress the company is making. He said:
We are pleased to deliver another solid set of numbers as Zip resets and moves toward positive cash flow, taking control of our future. During the quarter we made great progress on our refreshed strategy to deliver sustainable growth, right-size our global cost base and accelerate our path to profitability.
With a more focused strategy on our core markets ANZ and the US, we substantially lowered credit losses, repaid $40m of debt, and completed an upsized $300m receivables funding transaction, demonstrating the resilience of the business model in the face of ongoing external volatility.
Mr Diamond also highlights that the cost of living crisis has supported demand for its offering. He said:
We continue to add new customers to the platform and provide increased benefits to both customers and merchants as they navigate a rising cost environment.
The underlying business remains strong, and with the simplification of the business following adjustments to strategy, we are well funded and positioned to execute ahead of seasonal peak volumes and beyond into H2 FY23. Zip's simple, fair and easy to use product is becoming even more important to customers and we are well on our way to disrupting the traditional credit card model and providing people with control of their financial lives.
