Is the Zip Co Ltd (ASX: Z1P) share price a buy due to the growth reported in its December 2018 quarter result?
Zip Co provides customers with a revolving line of credit to finance their retail purchase with its brands of Zip Pay, Zip Money and Pocketbook. It is one of the largest buy now, pay later providers in Australia. Some of its largest clients include Bunnings Warehouse, Appliances Online, EB Games and Officeworks.
Zip Co’s December 2018 Quarter Of Growth
Zip Co reported quarterly revenue in December 2018 of $19.2 million, which was a 28% increase compared to the first FY19 quarter. Receivables increased to $489 million, an increased of 36% compared to the first FY19 quarter.
The buy now, pay later business achieved record transaction volume of $304.4 million, which was up 60% on the September 2018 quarter and reflected growth of 117% year on year. Transaction volume for November and December both exceeded $100 million in the key Christmas period.
Zip Co boasted that it achieved market-leading credit performance during the quarter with net bad debts at 1.81% in December 2018, it was 2.4% in the previous quarter. Net bad debts written off were $2.3 million, which was the same as the last quarter, which the company was pleased with considering how much the receivable book grew in that time.
The increasing scale of Zip Co is helping bring its operating leverage. Costs were 17.2% of average receivables in the September 2018 quarter, in the December 2018 quarter it dropped to 16.1%.
Perhaps the key figure in the update, the company achieved record operating cash of $4.6 million, which was an 84% increase compared to the September 2018 quarter.
Zip Co CEO Larry Diamond said: “Our investment in our credit technology, big data and strategic choices around upfront customer due diligence, has ensured we continue to build a robust and sustainable platform in the Buy Now Pay Later (BNPL) sector.”
Is the Zip Co share price a buy?
Zip Co is showing all the signs of a business that is reaching a point of good profitability from now on. In some ways, it’s more attractive than Afterpay Touch Group Ltd (ASX: APT) because it could report a bottom line profit in FY19. We’ve covered Afterpay in great detail here.
However, whilst it is growing strongly, I am not currently interested in buying Zip Co shares. Short term financing businesses aren’t what I like to invest in and a recession could make things very difficult for the company. I’d much rather buy proven ASX shares with a long history of profit generation & growth such as the ones in the free report below.
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