Zip Co sees emerging opportunities in Australia’s BNPL shake-up as losses slashed to $414m

Zip Co sees emerging opportunities in Australia’s BNPL shake-up as losses slashed to $414m

Zip Co's new CEO Cynthia Scott

Zip Co (ASX: ZIP), emboldened by an improved performance in FY23 that saw its bottom-line loss more than halved to $414 million, has declared it is primed to seize on opportunities amid a shake-up of the buy-now pay-later (BNPL) sector in Australia.

In an upbeat assessment of Zip Co’s earnings performance, which included record transaction volumes, record revenue and a reduction in bad debts, CEO Cynthia Scott says a strategic review of group operations over the past year has positioned the company for ‘sustainable growth and product innovation’ in its core markets of Australia and New Zealand.

“We achieved an important milestone, exiting FY23 with the US and NZ businesses cash EBTDA positive, along with the Australian business which has been cash EBTDA positive for five years,” says Scott, who was appointed to the job earlier this month, having previously been CEO of Zip's Australia-New Zealand business.

“In Australia, we launched new merchant relationships with marque merchants including eBay AU, Webjet, Jetstar, Peloton and Uber.”

Scott says as the consolidation of digital financial services continues to play out amid tighter regulatory control of the industry in Australia, she sees ‘significant opportunities for Zip as this dynamic continues’.

“Being cash EBDTA positive and with business practices aligned to the government’s proposed BNPL regulatory framework, including having held an Australian Credit Licence for 10 years and conducting full ID, credit and affordability checks on our customers, makes Zip uniquely placed in the market.”

Zip’s net loss of $414 million for FY23 compares with a $1.1 billion loss a year earlier, with the latest result buoyed by a 16 per cent surge in group revenue to a record $693.2 million.

The result was built on a 7 per cent lift in total transaction volume (TTV) to a record $8.9 billion, with higher margins feeding into the bottom line.

A reduction in net bad debts to 2 per cent of TTV, from 2.7 per cent a year earlier, also added to the performance.

“The improvement in bad debt performance was a particular highlight and supported by a reduction in costs, provides a strong platform for profitable growth," Scott says.

“We achieved this against a backdrop of rising interest rates and inflationary conditions, demonstrating the resilience and increasing relevance of our product offering to our customers and merchants.”

However, a more than doubling of interest costs to $161.5 million helped keep net cash flow in the red for the year.

Zip strengthened its balance sheet in FY23 by reducing the outstanding face value of its senior convertible note from $400 million to $137.8 million. Since the end of June, the outstanding face value has been cut to $130.5 million.

Zip says its US and New Zealand businesses finished FY23 cash EBTDA positive on a monthly basis, while New Zealand delivered positive cash EBTDA for FY23.

“The US opportunity remains in its early stages with the total addressable market estimated to be over US$11 trillion and BNPL penetration still under 2 per cent of total payments, demonstrating the sheer size of the opportunity that we are positioned to capture.”

Scott notes that Zip has completed its strategic review of global operations and non-core businesses, leading to the closure or wind-down of these businesses and ‘delivering cash inflows back to Zip and neutralising cash burn’. Among the operations were Twisto, Payflex and Spotii.

During the year, Zip ceased offering its Zip Business Trade and Trade Plus products to SMEs and began to wind down Zip Business Capital.

“Looking ahead, we are focusing on maintaining the momentum, driving sustainable growth and product innovation in our core markets of ANZ and the US as we deliver on our mission to be the first payment choice, everywhere and every day,” Scott says.

Meanwhile, Zip has announced that it plans to report quarterly results for the first and third quarters of FY24, reflecting the company’s ‘lifecycle and maturity’. Second and fourth-quarter results will be incorporated in Zip’s half and full-year reporting respectively.

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