Zip (ASX:Z1P) May update, share price down 11%

The Zip (ASX: Z1P) share price is down 11% today despite revealing more strong growth in its May 2020 update.

About the company

Zip 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 (BNPL) providers in Australia. Some of its largest clients include Bunnings Warehouse, Appliances Online, EB Games and Officeworks. As of 2019, Zip Co says it has more than 16,000 retail partners and 1.3 million customers in Australia.

Zip share price falls despite strong May growth

Zip announced that it achieved monthly revenue in May of $15.6 million, up 78% compared to a year ago. It also achieved monthly transaction volume of $189.3 million which was an increase of 63% year on year.

Zip’s receivables balance was $1.2 billion at the end of the month, that’s an increase of 85% compared to a year ago.

Customer numbers were up 63% year on year to 2.1 million and merchant numbers rose by 46% in 12 months to 23,600.

Are customers still paying their owed balances?

Zip said it had net bad debts of 2.16%, which was in line with management expectations and “significantly outperformed” the market.

Monthly arrears, which is a forward indicator of future losses, reduced from 1.57% in April to 1.47% in May. Management described that as a great result under the circumstances.

There has been no change to requests for hardship assistance, the peak was in March with less than 0.08% of receivables. Customer repayment rates are on par or higher with pre-COVID-19 rates.

Summary

Zip continues to perform well and the QuadPay acquisition is exciting. It’s also a good sign that Zip managed to reach an agreement to raise up to $200 million from US-based Susquehanna International Group (SIG) to drive further growth.

However, I’m not surprised the Zip share price is down heavily today (with the market) with investors likely taking some profit off the table after a strong run.

For growth I’d rather buy something like Bubs (ASX: BUB), which doesn’t seem as risky to me.

Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned. 

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