The Zip Co Ltd (ASX: Z1P) share price is surging higher today after releasing its FY21 third quarter update.
How good was Zip’s FY21 Q3 result?
Zip revealed that it achieved quarterly transaction volume of $1.6 billion, up 114% year on year. It also saw 80% growth of its quarterly revenue to $114.4 million.
Those numbers were driven by record transaction numbers, with an increase of 195% to 12.4 million.
Customer numbers and merchants keep growing quickly. Customers increased by 88% to 6.4 million, whilst merchants on the platform went up 81% to 45,300.
Zip US, meaning Quadpay, was the strongest performer. It delivered growth in what’s normally a quieter quarter after Christmas and the Black Friday sales. Zip US saw transaction growth of 234% to $762 million, 188% growth of revenue to $54.4 million and customers increasing 153% to 3.8 million. This level of growth will help the Zip share price.
But Zip also saw solid growth in Australia and New Zealand with transaction volume growth of 61% to $837.3 million. Customer numbers rose 37% to 2.6 million and Zip ANZ quarterly revenue was $57.9 million – up 10% quarter on quarter and 37% year on year.
New merchants
Zip revealed that some of the latest large merchants to join include Microsoft, Boohoo, JD Sports, JB Hi-Fi Limited (ASX: JBH), The Good Guys and Adore Beauty Group Ltd (ASX: ABY).
Other financial metrics
The buy now, pay later business said that net bad debts reduced to 1.78% (down from 1.93%) for Australian receivables, which management described as a very strong result and further validated the strength of Zip’s credit decision technology and ability to manage risk.
Zip’s book continues to recycle every three months on a blended basis.
Zip management comments
Brad Lindenberg, co-CEO of Quadpay, said: “We are extremely pleased with these results which demonstrate the continued acceleration of the business and strong adoption of our product by consumers in the world’s largest e-commerce market.”
Summary thoughts
Zip continues to grow strongly. The business could do well in the UK after launching in late 2020, it has a pipeline of merchants joining the platform. Zip UK has won over merchants like Homebase, JD and Boohoo.
There were a number of other highlights including a soft launch into Canada and a follow-on investment into leading Eastern European BNPL player Twisto. It has also agreed terms for a strategic investment into South East Asia with Philippines BNPL player, TendoPay.
One thing to keep an eye on was a sizeable increase of ANZ arrears from 0.95% at 31 December 2020 to 1.20% to 31 March 2021.
With this rate of Zip revenue growth, it’s certainly one of the ASX growth shares to keep an eye on and I prefer Zip to Afterpay Ltd (ASX: APT) because of Quadpay. However, there’s a long way to go until it generates enough profit to justify the Zip share price.
