Zip share price dives as profitability promises fall on deaf ears

The buy now, pay later company is having a lousy day on the ASX boards following its annual general meeting.

| More on:
a man in business attire plunges into a room filled with water with bubbles streaming along his body as though he has completed a high dive.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Zip Co Ltd (ASX: ZIP) share price is heading south today following the company's annual general meeting (AGM).

As we make a beeline for the closing bell, shares in the buy now, pay later (BNPL) provider are down 3.8% to 38 cents apiece. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is 0.23% greener than yesterday, predominantly boosted by the healthcare and consumer discretionary sectors.

It appears investors are not satisfied with Zip's AGM this morning. The unprofitable company ranked within the top worst-performing shares inside the All Ordinaries Index (ASX: XAO) on Thursday.

Let's try to drill down into what may have prompted the negative response.

What went down at the AGM?

Zip kicked off its 2023 AGM today at 10am. The prepared remarks of Zip managing director and CEO Cynthia Scott were upbeat, touting that Zip achieved positive cash earnings before taxes, depreciation, and amortisation (EBTDA) in the first quarter of FY2024.

Reflecting on the past financial year, Scott detailed several key measures taken during the period to position the business more strongly. These included Zip's efforts to improve margins, lower its cost base, and de-leverage its balance sheet.

The CEO highlighted improved expectations to achieve positive cash EBTDA in the current financial year (FY24). This enhancement in forecast earnings was driven by "the performance of the ANZ business, further momentum in US TTV [total transaction volume], ongoing margin expansion and continued cost discipline."

Source: Zip Co 2023 AGM Presentation

Zip has already demonstrated its ability to drive TTV growth and margin expansion in the first quarter. As depicted in the AGM presentation, the BNPL player increased revenue by 31.9% despite TTV growing a lesser 11% year-on-year. This illustrates the positive impact of Zip's focus on reducing costs.

Commenting on the outlook, Zip's CEO said, "Building on our strong momentum in the Americas, the expansion of our financial services offering in Australia and our strengthened balance sheet, we are well-placed to capture our future growth opportunity."

Why is the Zip share price falling?

Based on the above information, it is difficult to comprehend the reaction to the Zip share price today.

Realistically, we can only speculate on why the proceedings may have left a bad taste in shareholders' mouths. One possible reason could relate to Zip's complete lack of mentioning net profits… earnings after interest, taxes, depreciation, and amortisation.

Sentiment tends to drive a share price in the short term. However, profits that can be banked (or paid out in dividends) determine the share price in the long run.

Some shareholders could be growing tired of Zip's lack of net profits after tax (NPAT). In FY23, the payment solutions company posted an NPAT loss of $385.9 million on $693.2 million in revenue.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Zip Co. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Fallers

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why CAR Group, Domino's, JB Hi-Fi, and WiseTech shares are dropping today

These shares are having a tough start to the week. But why?

Read more »

Three guys in shirts and ties give the thumbs down.
Share Fallers

Why Beach Energy, McMillan Shakespeare, News Corp, and Pilbara Minerals shares are falling today

These shares are ending the week in the red. But why?

Read more »

A young boy with a sombre face looks down at the zip fastener at the bottom of his jacket as he concentrates on unfastening the clasp.
BNPL shares

Should you buy the 34% dip on Zip shares?

After crashing 34% in a month, what’s next for Zip shares?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Beach Energy, Myer, Pexa, and Pinnacle shares are falling today

These shares are under pressure on Thursday. What's going?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Block, Canyon, Fisher & Paykel Healthcare, and Mesoblast shares are falling today

These shares are having a tough time on hump day. What's going on?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Fisher & Paykel Healthcare, Magellan, Resolute Mining, and Westgold shares are sinking today

These shares are starting the week deep in the red. But why?

Read more »

plummeting gold share price
Gold

Guess which ASX 200 gold stock just plunged 12% on FY 2025 production woes

The ASX 200 gold stock is taking a sharp fall on Monday. Let’s find out why.

Read more »

Man with a hand on his head looks at a red stock market chart showing a falling share price.
Share Fallers

These were the worst performing ASX 200 shares in January 2025

These shares had a month to forget. Why were investors selling them? Let's find out.

Read more »