The shares of buy now, pay later provider Zip Co Ltd (ASX: ZIP) fell by 33% to $1.90 following the release of its half-year results for the period ended December 31.
Financial Performance for H1 FY24
Zip Co reported strong growth across several key metrics for the first half of FY24:
- Cash EBTDA: Reported $124.3 million, an 85.6% increase from the prior corresponding period.
- Total Transaction Volume (TTV): Increased by 34.1% to $8.4 billion.
- Operating Margin: Rose significantly to 18.7% from 13% a year earlier.
- Transactions: Increased by 20.2% to 54.9 million.
- Merchants: Grew by 10.5% to 90,600.
- Active Customers: Rose by 4.1% to 6.6 million.
- Cash Gross Profit: Climbed 33.5% to $314.3 million, with a cash net transaction margin of 3.8%.
- Net Bad Debts: Stood at 1.73% of TTV, which is consistent with management's strategic settings.
Regional Growth Highlights
The company saw varied but positive growth across its key markets.
US Business
The US business was a significant growth driver:
- TTV increased 44.7% year-on-year to $6.3 billion.
- Revenue grew 47% to $445.3 million.
- Active customers in the US rose 9.7% to 4.6 million.
- CEO Cynthia Scott highlighted the expansion of the Pay-in-Z offering in the region.
ANZ Market
The ANZ market also showed growth:
- TTV grew 9.7% to $2.1 billion.
- Revenue was up 3.1%.
- Revenue and Australian receivables reportedly returned to growth.
Upgraded Guidance for FY 2026
Zip management provided upgraded guidance for FY 2026, indicating continued optimism for future performance:
- Group Operating Margin: Expected to be greater than 18%, an increase from the previous 16-19% range.
- Group Cash EBTDA as a % of TTV: Expected to be greater than 1.4%, an increase from greater than 1.3%.
Market Reaction
Despite the reported growth and upgraded guidance, the market reacted negatively, leading to a significant share price decline.
Several factors contributed to this adverse market reaction:
- Revenue Margin: Edged lower to 7.9%. This was primarily due to the higher-growth US business, which has a lower margin profile, constituting a larger share of total transaction volume.
- Net Bad Debts: Increased slightly to 1.73% of TTV from 1.56% a year ago, although remaining within target settings.
- Second-Half Outlook: Guidance indicates that second-half cash EBTDA is expected to be broadly in line with the first half, suggesting a potential moderation of profit growth.
- Profit-Taking: The share price had rallied significantly since April of the previous year, possibly triggering heavy profit-taking following the results release.