The Zip Co Ltd (ASX: ZIP) share price suffered through a terrible August 2023. It plunged by around 30%, as we can see on the chart below.
That compared to a fall of just 1.4% for the S&P/ASX 200 Index (ASX: XJO).
It wasn't until the end of August that the business reported its result for the 12 months to June 2023 but those numbers didn't help reignite investor confidence.
There were two market-sensitive announcements made during the month that could have played a part in the returns.
Leadership update
The buy now, pay later (BNPL) business said its new leadership structure reflected the company's lifecycle and maturity, and optimises the leadership structure to help "deliver on Zip's strategic priorities and next stage of profitable growth".
The change also means that the founders can "remain close to the business" and their team, according to Zip.
Cynthia Scott has become the group CEO and will oversee the company's operations and strategy. She had been the CEO of Zip ANZ since November 2021 and was previously the CEO of Barclays ANZ.
The co-founders of Zip, Peter Gray and Larry Diamond, will assume the roles of ANZ and US CEOs respectively to "drive performance in Zip's two core markets and the company's next stage of sustainable growth and product innovation".
Certainly, good leadership could help the Zip share price over time.
Earnings recap
Zip reported that in the 12 months to June 2023, its revenue rose by 16.1% to $693 million, while total transaction volume (TTV) improved 7% to $8.9 billion. The cash gross profit improved by 20.4% to $250.6 million.
It helped that the group's revenue margin was 7.8%, an increase of 60 basis points (0.6%) year over year, which was above its medium-term target.
The group's net bad debts, excluding the movement in the provision for expected credit losses, fell to 2% of TTV, down from 2.7% in FY22.
Zip also reported a net transaction margin of 2.8% for FY23, up from 2.5% in FY22, which the buy now, pay later business said was a strong result in a rising interest rate environment.
The business also said that its "core cash earnings before tax, depreciation and amortisation (EBTDA)" was a loss of $48.2 million. This reflected a 54.8% improvement in the second half of FY23 compared to the FY23 first half. Zip had previously guided that it would improve by up to 50%. The FY23 core cash EBTDA improved $103.2 million compared to a loss of $151.4 million in FY22.
What's going wrong for the Zip share price?
While revenue growth has slowed down compared to prior years, most of the above numbers seemed positive.
The company has been actively managing its settings in the US, and the country only saw a 9.5% rise in revenue, while the number of active customers decreased by 5.9%. The USA is meant to be a key growth market, but it's not making a lot of progress there at the moment.
In Australia, the federal government announced in May 2023 that it was going to further strengthen the buy now, pay later regulatory framework.
However, in Australia, the FY23 second half saw "increasing softness in the external environment impacting consumer credit more broadly". Arrears have ticked up from February 2023.
It's also expecting an increase in interest costs because of a lift in the base rate. However, the business has been actively improving its balance sheet and settling on some of its convertible notes.
Are there any positives to help the Zip share price?
Zip said that its Australian segment has been cash EBTDA positive for five years, while Zip US and Zip NZ exited FY23 EBTDA positive on a monthly basis.
The company increased its revenue, costs, and cash net transaction margin medium-term targets. Zip is aiming to be cash EBTDA positive in the second half of FY24. If arrears can trend down in Australia, and if it can keep improving its cash EBTDA margin and grow revenue then the Zip share price may rise, but I wouldn't count on it.
