The Zip Co Ltd (ASX: ZIP) share price is in focus after the buy now, pay later business revealed a positive update for its FY24 first quarter.
Zip’s FY24 first quarter update
Zip said that in the first three months of the 2024 financial year, its transaction volume for the quarter increased 11% year on year to $2.3 billion. Transaction numbers increased 6.1% to 18 million.
Quarterly revenue increased by 31.9% to $204.4 million, with the revenue margin improving from 7.5% to 8.9%.
The cash transaction margin improved to 3.5%, up from 2.4% in the first quarter of FY23, which Zip called another particularly strong result in a rising interest rate environment.
Zip said that it achieved positive cash EBTDA (EBITDA explained) as a group in the FY24 first quarter. It’s now expecting to achieve a positive group cash EBTDA result for FY24. This could be a real boost for the Zip share price.
The buy now, pay later business said that its credit risk settings affected customer credit growth rates. Zip Americas saw active customers decrease 1.1% quarter on quarter to 3.8 million, while Zip ANZ saw active customers decrease by 0.5% to 2.3 million.
What about bad debts?
Impressively, Zip said that US bad debts continued to perform well, with monthly cohort loss rates at approximately 1.3% of total transaction volume (TTV), which is below the target range of 1.5% to 2%.
It’s not such a good picture in Australia, with net bad debts increasing even further to 4.18%, up from 4% as at 30 June 2023. However, Zip’s actions are “delivering the targeted outcomes” with early stage arrears (1 to 30 days past due) continuing to trend down and being at the lowest level since 2021 – net bad debts are expected to follow this trend during the second half of FY24 and beyond.
Final thoughts on the Zip share price
If the company can remain cash EBTDA profitable for FY24, FY25 and so on, then it could find a level of sustainability that it didn’t have before. It’s doing well at improving its balance sheet.
It’ll be interesting to see if Zip can maintain its revenue and customers if it’s being more guarded with its credit settings. It probably needs to be in the current uncertain environment.
The Zip share price may be able to do well in the shorter-term if it can demonstrate cash profit, but I’m still not convinced it’s going to become a highly profitable business in the longer-term.
