Zip Co Ltd (ASX: ZIP) shares were on fire in April and were among the best performers on the ASX 200 index.
During the month, the buy now pay later (BNPL) provider's shares rocketed approximately 55%.
Let's see why investors were fighting to get hold of them.
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Why did Zip shares rocket in April?
Investors were bidding its shares higher last month after it released an impressive quarterly update.
At a time when many in the market were expecting the BNPL provider to be struggling, it outperformed expectations and even upgraded its guidance.
According to the update, Zip achieved record cash EBTDA of $65.1 million for the third quarter, which is a 41.5% increase on the prior corresponding period.
The key driver of this was its strong total transaction volume growth. Zip revealed growth of 22.4% year on year to $4 billion. This underpinned total income growth of 20.2% to $335.2 million for the three months.
Another positive was that Zip reported an expansion in its operating margin to 19.4%. This is up from 16.5% a year earlier.
Commenting on its 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.
But as mentioned above, the major highlight was arguably the guidance upgrade.
It now expects group cash EBTDA of at least $260 million for the full year. This is a 4.6% increase on its previous guidance of approximately $248.6 million.
Cynthia Scott added:
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.
Where next for its shares?
Despite rising strongly in April, a number of brokers see significant upside for Zip shares. One of them is Ord Minnett, which responded to the update by retaining its buy rating with an improved price target of $4.00.
Based on its current share price of $2.46, this implies potential upside of over 60% for investors over the next 12 months.
Elsewhere, the team at Macquarie Group Ltd (ASX: MQG) has an outperform rating and $3.40 price target on Zip shares. This suggests that upside of almost 40% is possible from current levels.
