Zip Co Ltd (ASX: ZIP) shares are on the move on Friday morning.
At the time of writing, the buy now pay later provider's shares are up 24% to $2.54.
This follows the release of its third quarter update before the market open.
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Zip shares rocket on results day
Investors have been buying the company's shares following the release of a quarterly update which revealed strong growth and an upgrade to guidance.
According to the release, Zip delivered record cash EBTDA of $65.1 million for the third quarter. This represents a 41.5% increase on the prior corresponding period.
This was underpinned by total transaction volume growth of 22.4% year on year to $4.0 billion, and total income growth of 20.2% to $335.2 million.
Importantly, the company also reported operating margin expansion to 19.4%, up from 16.5% a year earlier.
US performance a key highlight
A major focus for investors is likely to be Zip's US business, which continues to drive its overall growth.
The company reported that US total transaction volume grew strongly, increasing 43.1% year on year on a constant currency basis.
Encouragingly, US net bad debts remained steady at 1.86% of transaction volume, despite broader growth in the business.
This appears to align with expectations that the company would be able to maintain credit quality while scaling its operations.
However, at a group level, net bad debts increased to 1.9% of transaction volume, up from 1.6% a year ago.
Margins and profitability are improving
Zip also highlighted strong unit economics during the quarter. Its cash net transaction margin remained stable at 3.9%, while operating leverage helped drive profitability higher.
The company's active customer base grew year on year to 6.5 million, and the number of merchants on its platform increased 12.7% to 93,900. However, it is worth noting that active customers are down from 6.6 million at the end of December.
Management pointed to deeper customer engagement and disciplined execution as key drivers of the performance.
Zip's CEO and managing director, Cynthia Scott, said:
Zip's resilient business model continues to drive increased profitability at scale, delivering record cash earnings of $65.1m, up 41.5% year on year. Operating margin expanded 292bps to 19.4%, reflecting strong unit economics and significant operating leverage. Momentum continued across both markets, underpinned by deepened customer engagement and disciplined execution.
In the US, TTV growth accelerated to 43.1% (in USD) year on year while active customers grew 9.0% (+375k), merchants on the platform increased 17.9%, and the business expanded its Pay-in-Z offering through the launch of Pay-in-2. We achieved these outcomes while holding credit losses steady within our target range, with US credit losses forecast to decline in 4Q26 to below 1.75% of TTV.
Guidance upgraded
Giving Zip shares a boost today is news that it has upgraded its FY 2026 guidance following the strong third quarter.
The company now expects group cash EBTDA of at least $260 million for the full year, reflecting confidence in continued momentum. This compares to its previous guidance of approximately $248.6 million.
It also reaffirmed expectations for strong US growth, targeting transaction volume growth of more than 40% in that market.
Scott commented:
Following a strong third quarter performance, we have upgraded our FY26 Group cash EBTDA guidance to be no less than $260.0m, while reconfirming each of our FY26 target ranges.
