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HY22 result in: What’s the Zip (ASX:Z1P) share price doing?

After reporting the FY22 half-year result, what’s the Zip Co Ltd (ASX: Z1P) share price doing?

Zip is one of the largest buy now, pay later operators. However, the Zip share price has sunk 80% since the start of the year.

Zip’s FY22 half-year result

Here are some of the main numbers from the Zip report:

  • Revenue jumped 89% to $302.2 million
  • Transaction volumes surged 93% to $4.5 billion
  • Transaction numbers jumped 147% to 36.3 million
  • Customer numbers soared 74% to 9.9 million
  • Merchants on the platform increased 113% to 81,800
  • Revenue margin of 6.7%

Zip wanted to highlight to investors that its core markets are still looking good. In Australia, it remains “robust” and its “sustainable model” has delivered the 14th consecutive quarter of positive cash flow.

The buy now, pay later business also said that the US is on a path to positive cash flow and continues to scale at a quick pace with growth of over 70% year on year across all key metrics. Zip says that the US remains a priority market with a significant opportunity.

Zip USA revenue grew 153% to $146.1 million. ANZ revenue rose 43% to $140.3 million. UK revenue was $3.7 million and expansion market revenue was $4 million.

Profitability drops

Zip revealed that its cash transaction margin fell to 2.1%, down from 3.7% in the prior corresponding period. This reflected the rising bad debt costs with the current credit headwinds as well as increased weighting towards the rest of the world. This could make things tricky for the Zip share price.

Management said that the company is addressing its risk decisioning policies and collection and recoveries processes to immediately address the credit performance.

However, Zip said that it is still well funded with enough funding to support its global plans with undrawn facilities of $568.2 million at 31 December 2021, with a weighted average interest rate of 3.08%.

Expansion markets

Zip is looking to grow in a number of different areas like India and Singapore. In India it invested in ZestMoney, the BNPL leader.

However, management are continuing to review its capital allocation and resources across its global footprint and is increasingly focusing investment in markets which accelerate the group’s path to profitability, reducing cash burn.

Outlook and thoughts on the Zip share price

In the medium term, Zip is expecting to deliver a cash transaction margin of between 2.5% to 3%. That would be an improvement from what was just reported, but lower than last year.

Revenue as a percentage of total transaction value (TTV) is expected to be between 6.5% to 7%. Cash cost of sales is expected to be between 3.5% to 4% as it optimises its risk rules to manage credit losses to within management’s target range of below 2%, while maintaining growth and delivering lower-cost processing through scale efficiencies and alternate repayment options, as well as driving lower-cost funding options.

If Zip can start making a profit and outline that to investors, then it may be able to reignite market sentiment. The Zip share price has sunk, but can it rise again? Only time will tell. The merger with Sezzle Inc (ASX: SZL) may be useful. The Zip shares are in a trading halt whilst it’s sorting out the funding for that transaction.

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