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The Zip (ASX:Z1P) share price is sinking after Q4

The Zip Co Ltd (ASX: Z1P) share price is falling after revealing its FY21 fourth quarter showing that revenue more than doubled.

What happened in Zip’s fourth quarter?

Zip revealed that it achieved record quarterly revenue of $129.9 million in the three months to 30 June, which was an increase of 104% year on year.

June 2021 was a record month for revenue, annualising at $537.2 million. Zip is seeing good monthly growth, which suggests FY22 could be another good year.

Zip also saw record quarterly transaction volume of $1.8 billion. This was an increase of 116% compared to last year’s fourth quarter.

It also experienced record transaction numbers for the quarter, rising 230% year on year to 14.2 million.

Zip’s customer numbers rose 87% year on year to 7.3 million and merchant numbers went up 84% year on year to 51,300.

It was the USA in-particular that saw huge growth. Revenue grew 280% to $64.3 million in Australian dollar terms, making it the biggest contributor to total revenue.

The UK has seen the start of operations, with $1 million of revenue, almost 70,000 customers and 150 merchants at 30 June 2021.

Margins

Zip said that it maintained its market-leading buy now, pay later margins with revenue as a percentage of total transaction value (TTV) at 7.2%, while capital efficiency remains “extremely healthy” with the Zip’s BNPL book of receivables recycling every three months.

Other quarterly highlights

Zip did a number of other things to keep driving growth during the quarter.

It made an agreement to acquire the remaining shares in both Twisto Payments in Europe and Spotii in the Middle East. The quarter also saw Zip launch organically into Canada and Mexico.

Zip raised $400 million through the issue of zero coupon senior convertible notes. It also completed an extension and increase to the Goldman Sachs debt facility in the US to now US$300 million, with the option to increase to US$400 million, supporting more than $5 billion in TTV.

Thoughts on Zip and the share price

Zip is seeing a lot of revenue growth, but it’s probably not making profit yet. But the expansion into Canada and Mexico opens the door to more growth. It’s hard to know if this is a good Zip share price or not because margins may not be as strong in the future as big competitors enter the BNPL arena such as PayPal, Commonwealth Bank of Australia (ASX: CBA) and even Apple.

With that in mind, there are other ASX growth shares I’ve got my eyes on.

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

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