The Zip Co Ltd (ASX: ZIP) share price is down more than 14% since its 52-week high of $3.56 in November 2024.
While it has dipped in the last couple of months, it should be noted that the Zip share price has risen more than 450% in the past year.
So, with the outlook seemingly improving, could this recent dip be an opportunity for investors to jump on the volatile ASX growth share?
Let's explore two factors that will help investors decide whether the business is appealing.
Ongoing revenue growth
Zip continues to grow its top line at a good pace, justifying the excitement surrounding Zip shares.
In the first quarter of FY25, total transaction value (TTV) grew 22.8% to $2.8 billion, helping revenue rise 18.8% to $239.9 million. The number of transactions increased 18.1% to 21.3 million.
A key part of the growth has been an increase in customers in the United States, which is a huge market for Zip to tap into. In the first quarter of FY25, US customers rose 2.6% year over year to 3.94 million. This helped US TTV soar 39.5% year on year to $1.94 billion. Meanwhile, ANZ TTV dropped 3.1% to $871.5 million.
The company is also adding more merchants to its system, which in turn provides more choices for customers. In the FY25 first quarter, total merchants increased 7% year over year to 80,100.
If the company can continue growing TTV, then its revenue can continue to increase. This will help drive profits.
Profitability
The company's profit numbers are going in the right direction as it gets bigger. Ultimately, investors want to see their company make a profit, and the FY25 first quarter showed a number of positives.
Zip's total cash operating profit (EBTDA) grew by 233.7% to $31.7 million. Net bad debts reduced to 1.6% of TTV, down from 1.9% of TTV in the first quarter of FY24. Zip also reported its cash transaction margin was 3.9%, up from 3.6% in the first quarter of FY24.
The most important thing for Zip is to grow its net profit after tax (NPAT) over the long term. The broker UBS currently forecasts that Zip could make a net profit of $45 million in FY25, $128 million in FY26 and eventually $286 million in FY29.
At the current Zip share price, it's trading at 14x FY29's estimated earnings, with forecast earnings per share (EPS) in that year of 22 cents. That doesn't seem like a crazy price, and UBS also predicts paying a dividend per share of 9 cents in FY29.
I think the company is a long-term buy if it can continue growing TTV, increasing its net profit margin and ensuring that bad debts stay relatively low.
