The Zip Co Ltd (ASX: ZIP) share price is up more than 10% this week after the buy now, pay later company's latest quarterly update. The S&P/ASX 200 Index (ASX: XJO) stock has continued to impress the market with its growth.
As the chart above shows, 2024 has been incredible for the business. It has risen close to 400% this year and approximately 900% in the last 12 months.
Analysts have been reviewing the latest numbers and evaluating whether the company is a buy or no longer good value because of investor excitement.
Before we discuss the analysts' thoughts on the Zip share price, I'll briefly recap some of the main numbers.
Quarterly recap
In the three months to September 2024, Zip reported its total transaction value (TTV) rose 22.8% to $2.8 billion, while revenue increased 18.8% to $239.9 million. The revenue grew at a slower pace than TTV because the revenue margin declined to 8.5%, down from 8.8% in the first quarter of FY24.
Zip's cash transaction margin was 3.9%, up from 3.6%. The overall cash operating profit (EBTDA) increased 233.7% to $31.7 million.
Net bad debts were approximately 1.6% of TTV, an improvement from 1.9% in the prior corresponding period.
Active customers increased by 1.1% quarter over quarter to 6.08 million, and merchants rose by 7% year over year to 80,100.
Analyst views on the ASX 200 stock
According to reporting by The Australian, Citi analyst Siraj Ahmed thinks Zip will be able to beat the market's expectations of the business in terms of TTV, revenue, and cash EBTDA because of its ongoing momentum in the US and the impressive net transaction margin in ANZ.
The Citi expert is forecasting FY25 cash EBTDA of $145 million, which is 12% higher than what market analysts (consensus) are expecting.
Ahmed thinks it could do even better if Zip's strong US performance continues. The FY25 first quarter saw US TTV volume growth of 43%, which was 5% stronger than what he was expecting. However, net bad debts in the US are rising as the company aims for new customers, so the net transaction margin may have peaked.
Turning to UBS' views on the ASX 200 stock, the broker is still calling Zip a buy. It has a price target on the business of $3.65. That implies a possible rise of more than 20% from its current level.
UBS noted that the US "continues to be a star performer" thanks to its strong momentum. It has increased its expectations for US customer growth to 0.25 million but said this could still be "conservative". It noted further rate cuts in the US could also boost US TTV.
However, it noted that ANZ TTV growth "remains weak", and it's currently expecting FY25 ANZ TTV to fall 1%, with a projected slight reduction of 0.1 million for active customers.
The broker thinks Zip's EBTDA margin could continue rising because cost control remains a "key focus". It's expecting the cash EBTDA margin to rise to 17% in FY26, up from 13% in the FY25 first quarter.
Overall, UBS thinks Zip could generate net profit of $45 million in FY25, which could be useful for supporting the Zip share price valuation.
