The Zip Co Ltd (ASX: ZIP) share price is up around 10% after it announced deals to divest some of its businesses.
Zip is a buy now, pay later business, which used to be one of the largest companies in the sector across the world.
Asset sales and global retreat by Zip
It has signed agreements to divest its businesses in central and eastern Europe (Twisto) and South Africa (Payflex), and it also said it’s on track with the “wind-down” of its businesses in the Middle East.
This is subject to a number of conditions, including regulatory approval.
Zip is expecting total net cash inflows of approximately $20 million to be received during the second half of FY23.
Cash EBTDA for Zip’s Europe, Middle East and Africa businesses was negative $10.2 million in the first half of FY23. Zip said it will have ended its cash burn from its rest-of-the-world footprint by the end of the financial year.
The BNPL also said that it continues to progress other activities in line with its strategic priorities. Zip said its initiatives demonstrated continued execution of Zip’s strategy to simplify its portfolio and focus on the core businesses of ANZ and the US.
Zip also said that the expected cash inflows will contribute directly to available cash and liquidity, and it remains confident that it has sufficient available cash and liquidity to deliver positive group cash EBTDA during the first half of FY24. That sounds like good news for the Zip share price.
Management commentary
The Zip co-founder and global CEO Larry Diamond said:
Twelve months ago, in response to the changes in market conditions we pivoted our strategy from a focus on global growth to a focus on sustainable growth in our core markets, and accelerating our path to profitability. While we continue to see increased demand globally for our products from both customers and merchants, we made the decision to allocate resources to areas of our business that are either profitable or have a near and clear path to profitability.
Final thoughts on the Zip share price
The Zip share price is down a lot from its peak. But, being cashflow breakeven (and positive) is very good news for the business. However, the sale means its global growth avenue is now a lot smaller. I’m also not sure how much more profitable Zip can become from here, with higher interest rates changing the picture.
I’m pleased for Zip as it makes it much more likely to progress in here, but there are other ASX growth shares I’d rather buy.
