The Zip Co Ltd (ASX: ZIP) share price is rocketing higher on Thursday morning.
At the time of writing, the buy now pay later (BNPL) provider's shares are up 14% to 61.5 cents.
Why is the Zip share price racing higher?
Investors have been scrambling to buy Zip's shares today after it released a very positive announcement.
According to the release, Zip has signed agreements to divest its wholly owned businesses in Central and Eastern Europe (Twisto) and South Africa (Payflex). In addition, it is on track with the wind-down of its business in the Middle East.
Management highlights that subject to closing conditions, including regulatory approval, it expects to receive aggregate net cash inflows of approximately $20 million during the second half of FY 2023.
Another positive is that these operations were operating at a loss and acting as a drag on its earnings. The company notes that its cash operating earnings for its EMEA businesses was -$10.2 million during the first half of FY 2023.
As a result, upon completion of these transactions and other actions, Zip will have successfully delivered on its objective of neutralising cash burn from its Rest of the World (RoW) footprint by the end of this financial year.
On target to achieve profit goals
The release also reveals that Zip continues to progress other activities in line with its strategic priorities.
All in all, management remains confident that it has sufficient available cash and liquidity to deliver on positive group cash EBTDA during the first half of FY 2024.
Zip's co-founder and global CEO, Larry Diamond, commented:
Twelve months ago, in response to the changes in market conditions we pivoted our strategy from a focus on global growth to a focus on sustainable growth in our core markets, and accelerating our path to profitability. While we continue to see increased demand globally for our products from both customers and merchants, we made the decision to allocate resources to areas of our business that are either profitable or have a near and clear path to profitability.
The completion of these RoW assets sales marks another step in Zip's transition as we become a stronger and leaner business, focused on core products in core markets. With sale proceeds of approximately $20m, RoW cash burn neutralised and the up to 50% improvement in Core Cash EBTDA we are expecting in H2 FY23, we remain confident that we have sufficient cash and liquidity to deliver on our target of group positive cash EBTDA during H1 FY24.
The Zip share price is now up 20% since the start of the year.
