Zip Co Ltd (ASX: ZIP) shares will be in focus later this week when the buy now pay later (BNPL) provider releases its half year results.
Ahead of the release, let's take a look at what we should be looking out for from its results on Thursday 23 February.
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Zip results
Given that Zip released its second quarter update last month, there won't be too many surprises from its results.
As a reminder, the company ended the period with 7.4 million active customers. This comprises 4 million in the United States, 2.3 million in the ANZ market, and 1.1 million across its Rest of the World segment.
From these customers, Zip delivered transaction volume of approximately $4.9 billion across the first half. This was up 8.9% over the prior corresponding period.
And with the company's revenue margin improving year over year despite the tough operating conditions, Zip's first half revenue came in 16.2% higher at $351.2 million.
The big question for investors, though, is what will this top line growth and its quest to accelerate its path to profitability mean for its bottom line.
A year earlier, Zip reported a loss of $214.3 million or an adjusted loss of $153.6 million. The former includes impairments of goodwill allocated to Zip UK and global rebranding costs.
Clearly, the market is expecting much better this time around. And with management revealing that it is making "great progress" to deliver sustainable growth and accelerate its "path to profitability", the market will undoubtedly be looking for signs that this is the case.
What else?
Analysts at Citi also suggested investors look out for commentary on asset divestments with its update. Last month it commented:
The key highlight of Zip's 2Q trading update was the sharp reduction in loss rates in the US that resulted in US becoming cash flow positive in Nov/Dec. With ~$80 million in available cash and further proceeds expected from the sale of RoW businesses (CitiE: $25 million in 2H23e), we see Zip as having ample cash to reach its cashflow breakeven target.
However, we believe Zip will need further capital when the focus shifts to growth, especially when considering that it lacks scale in the US. While the company has made strong progress in reducing losses, we remain Sell/High Risk rated as we continue to see risks to customer losses given slowing macro. We open a positive catalyst watch as we expect an update on the proceeds from selling RoW businesses which could boost balance sheet.
