Zip Co Ltd (ASX: ZIP) shares will be in the limelight next week, with the company expected to hand in its full-year result to 30 June 2023 on Tuesday.
The buy now, pay later (BNPL) operator has had a rough time over the last two and a half years, as we can see on the chart below. In the last year alone, the company's share price is down more than 60%.
Before getting into what the business might reveal in its results, let's look at what we already know.
Latest update
The last numbers released were for the three months to June 2023. Certainly, these are figures that investors will have in their minds as they assess the company's prospects.
Group quarterly revenue was $193.8 million, an increase of 21.1% year over year. Zip ANZ revenue rose 26.1%, while Zip US revenue went up 13.6%. However, transaction volume was only up by 6.4% year over year to $2.3 billion.
The cash transaction margin for the core business (ANZ, Americas, and Zip business) improved again to 3.1% for the quarter, up from 2.8% in the FY23 third quarter. This will be important for Zip shares going forward, amid current economic pressures.
The revenue margin for the core business improved to 8.5%, compared to 7.6% for the fourth quarter of FY22.
The Zip US credit net loss was improving, finishing at 0.85% of total transaction value (TTV) for the fourth quarter, an improvement from 1.2% in the FY23 third quarter and 2.7% in the FY22 fourth quarter.
Zip US exited FY23 cash positive on an earnings before tax, depreciation, and amortisation (EBTDA) monthly basis. This provides a "strong platform for growth in FY24", the company said.
However, Zip's Australian operations experienced net bad debts on 3.11% of TTV, with there being "increasing softness in the external environment impacting consumer credit more broadly", as well as other factors. Since the start of FY22, this was the worst quarter for bad debts, increasing significantly from the 2.1% reported in the second quarter of FY23.
Zip continues to work on its cost base to reduce costs. It also said it had gone through a process to reduce its annualised base salary costs across the business by around $16 million.
The business has also been working on improving its balance sheet by reducing the amount of convertible notes.
Commentary about the company's profitability, arrears, bad debts, and cash burn outlook for FY24 could be critical for how the market responds to Zip shares.
What else has been happening for Zip?
The Australian today reported rumours that Zip is considering retreating from the US, saying "some think Zip Co's future as a viable company rests on focusing on the local market and abandoning plans for global expansion".
Zip has already made the decision to exit its central and eastern European business, 'Twisto'. It's also bowing out of its South African business, 'Payflex' and 'Middle East business, 'Spotii'.
The company aimed to neutralise its cash burn from the 'rest of the world' footprint by the end of the FY23 financial year. But leaving the huge – and seemingly well-performing – US market would come as quite a surprise and, according to Zip, is not happening.
A Zip spokesperson advised The Motley Fool that speculation the company is set to exit the US is "100% incorrect". Furthermore, Zip's co-founder, Larry Diamond, relocated to the US in October 2022 to lead the business in North America and will exclusively focus on this region. According to Zip, the company remains "firmly committed" to the US as one of its two core markets.
If Zip can get to the point where it's cash-flow positive, then it will be on a much more secure footing. But it won't be helpful if the company's net debt levels remain elevated.
