The Zip Co Ltd (ASX: ZIP) share price is in focus after the BNPL ASX share revealed a mixed set of numbers in FY22.
Zip is one of the largest buy now, pay later players in the world.
Zip’s FY22 result
Here are some of the main highlights from the 2022 financial year for the business:
- Revenue jumped 57% to $620 million
- Transaction volume went up 51% to $8.7 billion
- Customer numbers rose 56% to 11.4 million
- Merchant numbers grew by 77% to 90,700
- Cash gross profit increased 12% to $203.7 million
- Cash EBTDA of a loss of $207 million (EBITDA explained – EBTDA includes interest)
- Australian cash EBTDA of $28 million (up 250%)
- Statutory net loss of $1 billion
The company was very pleased to report that it made a cash operating profit in Australia. It demonstrated the “profitability of strong unit economics and Zip’s unique model as the business continues to scale”.
Zip believes that it can reach EBTDA profitability in FY24. So, it’s looking to achieve sustainable growth in core markets, with an improvement in unit economics and by optimising its global cost base.
One of the growth initiatives that Zip launched during the year was a physical card in the US, making it easier for customers to pay in four instalments with Zip in-store.
The statutory net loss includes a total impairment of goodwill of $768.4 million, of which $589.3 million related to the US. It has reduced its forecast growth rate and cash flows, resulting in a lower recoverable amount than what Zip had the carrying value as on the balance sheet. In other words, Zip doesn’t think its business is worth as much and this has impacted the balance sheet.
Improved unit economics
Zip said that it took a number of actions to improve losses in Australia and the US. It tightened its decisioning rules and cut off scores, enhanced credit limit management and “optimised” its approach to repayments and collections.
It also said that in FY22, it implemented a number of product re-pricing initiatives in ANZ to reflect the higher cost operating environment, supporting “strong” revenue margins of 8.3% for the fourth quarter in ANZ.
Zip also cancelled the planned acquisition of Sezzle Inc (ASX: SZL).
Optimising the cost cost
Zip made the decision to close its Singapore and UK operations, in line with its goal of reducing its cash burn, while commencing a “strategic review” of the rest of the world businesses.
It has undertaken an internal reorganisation to reduce people costs, which will help to the tune of at least $30 million in FY23.
Zip is also winding down ‘non-core’ products in ANZ.
Summary thoughts on the Zip share price and FY22 result
It’s good that Zip is getting closer to cash profitability so that its operations are more sustainable. However, the huge drop of Zip shares and the massive impairment show a big destruction of value for shareholders.
Zip may be able to turn things around. But, I wouldn’t expect it to get back to former heights any time soon. The economic changes that are happening could hamper Zip’s growth. It has already led to the business retreating from some markets.
I would rather go for other ASX growth shares where the future margins and growth are easier to predict.
