The Zip Co Ltd (ASX: ZIP) share price is up after the company released its FY22 fourth quarter.
Zip is one of the largest buy now, pay later operators in Australia. However, it’s a lot smaller after dropping 80% in 2022.
Growth continues
Zip reported that for the fourth quarter of FY22 to June, it saw:
- Quarterly revenue of $160.1 million, up 27% year on year
- Transaction volume of $2.2 billion, up 20% year on year
- Customer numbers increased 64% year on year to 12 million
- Merchant numbers increased 77% year on year to 90,700
While the business isn’t growing as fast as it used to, it’s good to see that customer and merchant numbers continue rise. But, compared to the March 2022 quarter, revenue was flat (with 0% growth).
Zip continues to sign large merchants onto its systems, including Qantas Airways Limited (ASX: QAN) in Australia and Bed Bath & Beyond Inc. Best Buy went live during the quarter and eBay is expected to go live in the coming months in Australia.
In the US, it has launched a physical card, which is seen as key to unlock the large offline opportunity.
Profitability
Zip said that its cash transaction margin was “strong” at 2.4%, up from 2.3% in the FY22 third quarter. The revenue margin remained “healthy” at 7.5%, down from 7.8% in the third quarter. These two numbers could be key for supporting the Zip share price.
However, the business noted that with its strategic objective to focus on the core markets of ANZ and the US, it has continued to make changes and right-size its global footprint and reduce cash burn. Zip and Sezzle Inc (ASX: SZL) are no longer going to merge.
It has available cash and liquidity of $278.6 million, which is expected to be enough money to support it to profitability at the cash EBTDA (that’s EBITDA, but including interest).
The decision to break off the merger will mean the company can reach cash EBTDA “earlier than anticipated”.
While it’s not focusing on the ‘rest of the world’, that segment is continuing to grow. Zip’s rest of world revenue rose 73% (pro forma) year on year to $8.5 million, after a 66% (pro forma) rise of the transaction volume to $159.5 million. Pro forma is just the company’s best guess of showing a useful comparison.
Final thoughts
Zip needs to do what it can to get to profitability. That will show investors that its business model can be sustainable and it doesn’t need external funding. I think this would go some way to boost investor thoughts on the Zip share price. I’m not sure what’s going to happen next, but things are certainly trickier for Zip now.
