If you owned Zip Co Ltd (ASX: ZIP) shares in 2024, you would have no doubt been grinning like a Cheshire Cat at the end of the year.
That's because the buy now pay later (BNPL) provider's shares absolutely thumped the market with an incredible return.
Over the course of the 12 months, Zip's shares rallied a massive 363%. This made it the best performing stock on the ASX 200 index for the year.
To put that gain into context, if you invested $10,000 into the company's shares at the very end of 2023, your investment would have grown to be worth approximately $46,000 a year later.
But how did we get here? Why were investors so determined to buy shares last year? Let's find out.
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Why did Zip shares smash the market in 2024?
A little over a year ago, things were looking significantly less positive for the company and the industry.
In fact, going back a touch further, many in the market believed there was a real possibility of Zip and other BNPL providers going out of business.
In late 2023, BNPL provider Openpay failed to recapitalise its business and was put into voluntary liquidation.
Elsewhere, Block Inc (ASX: SQ2) shares dropped so much that the company had a lower market capitalisation than the price it paid to acquire Afterpay.
In light of this, the company's shares were down in the doldrums and being avoided by the smart money.
But Zip would prove all the doubters wrong. In the face of rising interest rates, the company proved that its business model works and delivered a string of impressive quarterly results.
This culminated in a full year result in August that got investor hearts racing.
FY 2024 results
For the 12 months ended 30 June, Zip reported a 28.2% increase in revenue to $868 million and a 243.2% jump in cash earnings before tax, depreciation, and amortisation (EBTDA) to $69 million.
This was underpinned by a 14% lift in total transaction volume (TTV) to $10.1 billion, a 96 basis points increase in its revenue margin to 8.7%, a 96 basis points lift in its cash net transaction margin to 3.8%, and its 6 million active customers.
Impressively, despite higher interest rates and the cost of living crisis, Zip actually posted an 18 basis points reduction in its net bad debts to 1.7% of TTV.
Commenting on the result, Zip's CEO and Managing Director, Cynthia Scott said:
This has been an outstanding year for Zip, with the Company executing against all of its strategic priorities and reinforcing its position as a strong, simplified and profitable business. The team successfully delivered four quarters of profitability, achieving Cash EBTDA of $69.0 million for the year, an improvement of $117.0 million on FY23.
This result was driven by Zip's particularly strong performance in the US with record cash EBTDA, TTV and revenue, and the ANZ business delivering a record cash EBTDA result of $33.0 million underpinned by continued margin expansion.
What's next?
The good news is that analysts at UBS believe there are more gains to come. Its analysts have a buy rating and $3.65 price target on Zip's shares. This implies potential upside of 20% for investors from current levels.
