Zip merchant base nearly doubles, but bad debts a problem for Diamond

Zip merchant base nearly doubles, but bad debts a problem for Diamond

Zip Co CEO and co-founder Larry Diamond.

With a new ticker to boast, buy-now pay-later (BNPL) company Zip Co (ASX: ZIP) today unveiled its quarterly results, demonstrating solid rises across its fundamentals and telling investors it is on the “path to profitability”.

However, like its larger rival Afterpay (ASX: SQ2), bad debts haunt Zip despite the company implementing adjustments to its risk settings during the quarter.

The company, which goes by the ticker ZIP instead of Z1P as of today, saw revenue rise by 40 per cent to $159.2 million in the period ending 31 March, during which $2.1 billion was transacted through the platform - up 27 per cent year on year.

Customer numbers also rose significantly by 78 per cent to crack 11 million, and merchants using the platform nearly doubled on the same quarter in 2021 to approximately 86,200.


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The company is hoping to be profitable soon following a cost reduction strategy being implemented that Sydney-based Zip hopes will decrease global people costs by more than $30 million in the next financial year.

“In the half year results we acknowledged a change in external factors and announced several adjustments to our strategy - with a refined focus on sustainable growth, strong unit economics and fast tracking profitability. The quarter saw us continue to deliver top line growth and strong revenue margins, while beginning to implement this refreshed strategy,” Zip CEO and co-founder Larry Diamond says.

“Our merchant pipeline is exceptionally healthy and we look forward to welcoming game changing merchants to the platform in Q4.

“The underlying business remains strong, we are well funded and positioned to execute on the significant market opportunity as we aim to take control of our future. We are well on our way to disrupting the unfair and broken credit card, with a better and fairer digital alternative for the customer of tomorrow.”

During the quarter Zip brought on major merchant partners, including marquee names such as US electronics retailer Best Buy and the Australian business of e-commerce mainstay eBay.

The company says new merchant agreements in both Australia and the US will drive top line growth, noting the merchant pipeline in the two markets remains “very healthy”.

Zip also announced its ongoing acquisition of US-based rival Sezzle in Q3. The BNPL company notes the transaction remains subject to Zip and Sezzle shareholder approval, but is on track to be completed soon.

While exact figures were not provided, the BNPL company highlighted that credit losses increased outside of its target range during the quarter, with bad debts niggling at Zip much like they're doing to Afterpay.

Though Zip implemented adjustments to risk settings, the company expects losses from February and March to be tracking at 2.2 per cent of Zip’s total transaction volume.

“Further fine tuning and optimisation is expected to see losses continue to trend towards our target level of 2 per cent and below in the medium term,” says Zip, which has $303.4 million in cash and liquidity.

“In AU, adjustments to risk settings for both new and existing customers have been implemented, along with initiatives undertaken on portfolio management and collections, which combined are expected to see performance trend back to target levels in H1 FY23.”

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