Zip’s shares spike on full-year earnings upgrade as US business gathers momentum

Zip’s shares spike on full-year earnings upgrade as US business gathers momentum

Zip CEO Cynthia Scott

A strong start to the first quarter of this financial year, led by improvements in the US market, has set Zip Co (ASX: ZIP) up for positive cash earnings in FY24.

The buy-now-pay-later group says that with its Australian and New Zealand operations maintaining momentum, the US is shaping up as a key contributor to the company’s performance with year-on-year revenue growth of 40 per cent achieved in the three months to the end of September.

The news sent Zip shares 20 per cent higher to 36c each in early trade, although they retreated to 34c by 11.10am (AEDT).

Zip posted group revenue of $201.9 million in the first quarter, up 34.7 per cent from the same time last year, from total transaction volume of $2.29 billon – up 13 per cent. The company has not detailed the cash positive EBITDA performance for the quarter.

Zip posted core cash EDITDA of a $48.2 million loss in FY23, which was a significant improvement on the $151.4 million deficit of FY22.

Zip Group CEO Cynthia Scott describes the company’s positive cash EBTDA result for the September quarter as a ‘significant milestone’ that has been aided by fatter margins and the company’s renewed focus on reining in costs.

Scott says while Zip had previously expected a positive group cash EBTDA result for the second half of the year, it is now forecasting that this will translate into a positive cash result for the FY24 full year.

“Today’s result builds on our strong FY23 result and continued execution of our strategic objectives,” Scott says.

“Group revenue grew by 31.9 per cent and revenue margins were 8.9 per cent, up 140 basis points versus 1Q23.”

Scott says a 110 basis-point improvement in the cash transaction margin to 3.5 per cent also demonstrates the ‘resilience of the business model in a challenging external environment’.

“The result was driven by a strong performance in both core markets, with TTV (total transaction volume) growth in the US accelerating to 29.4 per cent year-on-year, while maintaining solid credit performance at 1.3 per cent of cohort TTV.

“The ANZ business expanded revenue margins again to 11.6 per cent for the period.”

During the quarter, Zip signed new merchant agreements with Amaysim, HBF Dental, R.M. Williams, Sheike & Co, Munro Footwear Group and Halloween.com.

“Looking ahead, Zip will continue to innovate and provide customers with better ways to pay and budget responsibly,” Scott says.

“We remain focused on driving sustainable growth and product innovation in our two core markets as we deliver on our mission to be the first payment choice, everywhere and every day.”

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