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FY20 report: Zip (ASX:Z1P) share price up again

The Zip Co Ltd (ASX: Z1P) share price is up again today after reporting its FY20 result. In early trading Zip shares are up 4%.

FY20 report

It has been a big week for Zip after reporting QuadPay’s update and then revealing the launch of Zip Business with eBay Australia.

Today Zip announced its FY20 report which showed full year revenue jumped 91% to $161 million. This was helped by the 87% growth of transaction volume to $2.1 billion. Its loan book (receivables) also increased by 73% to $1.18 billion.

Interest costs rose by $16 million due to the growth of the receivables book.

Gross profit rose by 68% to $51.6 million. The company said it delivered positive cash earnings before tax, depreciation and amortisation (EBTDA) while investing for growth. However, the net loss worsened by 80% to $20 million.

Other highlights

Zip said there are now 2.1 million customers (up 63%) and 24,500 merchants (up 51%) on the Zip platform.

The buy now, pay later business won over a number of large merchants during the year including Amazon, Cotton On, Petbarn, City Chic Collective Ltd (ASX: CCX), Grill’d, Pizza Hut as well as many others.

Pocketbook, a finance management tool, increased users to 800,000 over the year.

Management said the company delivered a strong credit performance with net bad debt write-offs of 2.24% and arrears of 1.33%, which was in line with management expectations and, according to Zip, significantly outperforming the market – though several players seem to claim that.

It has been a busy year of acquisitions – it acquired and integrated PartPay and Spotcap. It’s also planning to acquire US-based QuadPay with a capital investment of up to $200 million from Susquehanna Investment Group, subject to shareholder approval on 31 August 2020.

Outlook

In FY21 the company has a number of goals. It wants to complete the acquisition of QuadPay and accelerate its growth in the US. It also wants to launch in the UK in the next four months. Zip will continue to invest in its existing markets as well.

The BNPL business is also going to continue to roll out new products through integrated solutions to its retail partners and channels. Zip also wants more widespread in-store optionality for customers.

A key aim for Zip is to meaningfully increase the number of monthly transacting users and their frequency.

I think Zip seems like a very exciting business. However, we must pay attention to the Zip share price to decide if it’s good value or not. It has soared this week. It’s really hard to say if today’s price is worth paying because we don’t know how profitable Zip is going to be in the future. Will competition lead to lower margins when there are no more markets to grow into? I’d rather invest in something like Pushpay Holdings Ltd (ASX: PPH) which is easier to value.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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