The Zip Co Ltd (ASX: ZIP) share price was once a market marvel, but the last 18 months have brought it to its knees. And much of its tumble came amid concerns about the buy now, pay later (BNPL) outfit's future profitability.
The stock peaked at $14.53 apiece in early 2021 before hitting a multi-year low of 43.5 cents in June 2022.
Today, the Zip share price has recovered some to trade at 67 cents. Indeed, it's gained a notable 19% since the start of 2023.
Could its rebound be spurred by confidence that this is Zip's year to turn a profit? Let's take a look.
Zip shares have suffered in recent years
The Zip share price peaked as household savings soared amid the pandemic, leaving consumers with plenty of discretionary cash. Conversely, it collapsed as inflation took off, spurring interest rate hikes and the cost of living to surge.
Simultaneously, the company's bad debts – those not paid back by consumers – spiked and the value of many tech companies plunged
Not to mention, many of the world's biggest brands have got in on the BNPL action in recent years. Looking at you Apple Inc (NASDAQ: AAPL) and PayPal Holdings Inc (NASDAQ: PYPL).
Still, Zip is cash flow positive in Australia and New Zealand and has a clear path to free cash flow in the United States. But there's more to profitability than free cash flow. Let's jump into Zip's balance sheet.
Let's look at the BNPL icon's balance sheet
There were plenty of highlights in Zip's most recent full-year earnings, released in August 2022.
It posted a record $620 million in revenue and $8.7 billion in transaction volume. It also ended financial year 2022 with $279 million of cash and liquidity.
However, it also posted a whopping $1.1 billion post-tax loss for the period.
Meanwhile, the company turned its attention to sustainable growth amid 2022's economic environment. It looked to lessen cash burn, manage losses, and improve its economics.
So, can the company recover its losses in 2023 to post a profit? There's hope profitability won't evade the BNPL favourite for much longer.
Zip could be on track to post a profit in 2023
Competitor and Zip's once-takeover-target Sezzle Inc (ASX: SZL) posted its maiden monthly profit in December.
And Zip likely won't be far behind. The company is targeting profitability in financial year 2024.
In fact, it's aiming to post positive cash earnings before tax, depreciation, and amortisation (EBTDA) in the first half of next fiscal year, according to Zip CEO Larry Diamond.
That means it could be operating in the green by the end of calendar year 2023.
I'd be willing to bet that all eyes will be on the embattled ASX BNPL share, and its bottom line, in the coming months as the market anticipates the milestone news.
