FY21 Sep quarter: How did the Zip (ASX:Z1P) share price react?

The Zip Co Ltd (ASX: Z1P) share price was fairly unfazed today by the release of Zip’s September 2020 quarter update.

Zip is one of the largest buy now, pay later (BNPL) providers on the ASX. It also owns stakes in overseas BNPL providers such as QuadPay.

Zip Sept 2020 quarter update

Zip revealed that its quarterly revenue increased by 88% year on year to $71.7 million.

It achieved record quarterly transaction volume of $943.1 million, which was up 96% year on year. It now has an annualised transaction rate of around $3.8 billion. Its transaction numbers were up 130% year on year.

Zip’s total customers jumped by 114% year on year to 4.5 million, with 628,000 added in the quarter. Merchant numbers grew by 69% to 34,400.

Management said that Zip US (QuadPay) achieved record numbers, it saw $322.5 million of transaction volume, $23.4 million in revenue and it finished with 2.2 million customers.

Zip said that its monthly arrears, a forward indicator of future losses, reduced from 1.33% in June to 0.91% in September. The BNPL company said this was “an outstanding result” in the current climate.

There were other highlights from the quarter. It became a principal issuer with Visa and signed a strategic agreement with Marqeta to innovate the payment experience further.

One of the main highlights was that it completed the acquisition of QuadPay.

Zip is now operating across five important markets: Australia, New Zealand, the USA, the UK and South Africa.

Management comments

Zip Managing Director and CEO Larry Diamond said: “We are incredibly proud of the global team with another set of record results across all key geographies – Australia, New Zealand, the United States. In particular, the US demonstrated significant growth with revenue and volumes up 50% and 42% quarter on quarter respectively, with a number of marquee merchants going live in the quarter. Locally, the product and merchant pipeline are extremely exciting, and we look forward to a number of announcements in the months ahead. The current quarter has begun solidly in all markets, which is seasonally the strongest as we run up to Prime Day, Black Friday, Cyber Monday, Christmas and Boxing Day.”

Summary

It was a strong set of numbers, but I think the market was expecting it, which is why the Zip share price is down at the time of writing.

There is a lot of growth expectation built into the current Zip valuation. Will it be able to compete with Afterpay Ltd (ASX: APT) over the long term? Will the sector be able to maintain the current margins when they aren’t delivering so much growth for retailers?

I don’t know the answers to those questions. That’s why I prefer other ASX growth shares like Pushpay Holdings Ltd (ASX: PPH).

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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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