Zip achieves record revenue as losses blow out to $1b and bad debts persist

Zip achieves record revenue as losses blow out to $1b and bad debts persist

Zip co co-founder and CEO Larry Diamond. 

Buy-now pay-later firm Zip Co (ASX: ZIP) has achieved record revenue results in FY22 of $620 million, up 57 per cent year on year, but the ongoing issue of bad debts and a major impairment charge has seen the company’s losses blowout to $1 billion.

During the period ending 30 June 2022, Zip saw key financial metrics largely rise, with transaction volumes hitting record highs of $8.7 billion on the back of an increase in customers to 11.4 million people.

However, the company’s loss increased by 48.7 per cent from $743.4 million to $1.1 billion. Were it not for an $821.1 million impairment of goodwill and intangibles, the company’s loss would’ve been softer at $256.5 million.

That impairment was recorded on the basis of global inflation and rising interest rates, forcing Zip to adjust discount rates and reduce forecast growth rates and cash flows across the US and New Zealand geographies.

The company was particularly hit by bad debts and credit losses more than doubling during FY22, up 110 per cent to $276.1 million

Zip co-founder and CEO Larry Diamond says the company shifted gear following its 1H22 results to focus on delivering sustainable growth, right-sizing its global cost base and accelerating the path to profitability.

“To that end, I want to share that we have already delivered on a number of initiatives to reduce cash burn, manage credit losses and improve unit economics. Our ability to pivot and adapt to the new world, showcases the resilience and viability of our business model as we focus on the opportunity ahead in FY23,” Diamond says.

“It has also been an incredible year for innovation and top-line growth led by our fearless Zipsters. We’re thrilled to welcome a number of marquee enterprise merchants to the platform and we continue to deliver significant benefits to customers through our differentiated product offerings.”

During the year Zip launched with major retailers in both the US and Australia, including Best Buy, Qantas, Virgin and Hoyts. It also highlights the launch of a physical card for US customers, making it easier to access Zip in-store.

The company says it is working on driving down credit losses, and has tightened its decisioning rules and cut off scores, enhanced credit limit management and optimised its approach to repayments and collections.

As such, Zip US saw loss rates “meaningfully improve”, with July cohorts trending towards target levels, while in Australia written-off accounts lifted by 71 per cent in the fourth quarter. Zip expects group credit losses to trend towards approximately 2 per cent of TTV through FY23.

The company’s strategic plan also saw it exit operations in Singapore and the UK in order to reduce cash burn, and wind down non-core products including Zip Business Trade, Trade Plus and its financial management app Pocketbook, as well as the deprioritisation of new crypto and investment products.

By geographical segment, ANZ was Zip’s top performer, contributing $297.4 million to the total $603.1 million in revenue achieved during the year. The remainder was made up of $282 million from the US (up 60 per cent year on year), and $23.7 million from the rest of the world.

The company’s largest customer base is now well-and-truly the United States, where 6.4 million of the company’s 11.4 million customers reside.

Zip’s shares rose this morning, up 3.61 per cent to $1 per share at 11.21am AEST.

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