The Zip Co Ltd (ASX: ZIP) share price is under the spotlight after reporting its FY24 second quarter.
Zip is one of the larger buy now, pay later businesses.
Growth highlights
Zip revealed in the second quarter of FY24 that its transaction volume increased 8.5% year on year to $2.8 billion.
Quarterly revenue jumped 26.1% year on year to $225.6 million after an improvement in the revenue margin from 7.1% to 8.2%. Transaction numbers were up 4.1% to 20.6 million.
The FY24 second quarter saw the cash transaction margin – a measure of its underlying profitability – improve from 2.8% to 3.5%.
Active customer numbers ended the quarter at 6.3 million, up from 6.1 million in the FY24 first quarter.
Zip Americas saw TTV rise 31.1% year on year and revenue increased 34.8% compared to the second quarter of FY23.
US bad debts continued to perform well, according to Zip, with the monthly cohort loss rates approximately 1.3% to 1.4% of TTV, which was below the target range of 1.5% to 2%. In Australia, net bad debts improved by 54 basis points (0.54%) quarter on quarter to 3.64% of receivables. The performance of its arrears and bad debts could be key for the Zip share price in the next year or two.
It pointed out it has deleveraged its balance sheet with the outstanding face value of Zip’s senior convertible notes reducing to $68.8 million at 31 December 2023. Further conversions in January have reduced the outstanding face value to $61.9 million. Reducing its debt for a good price is a good move.
The balance sheet was “further strengthened and simplified” with a new $150 million corporate debt facility.
Zip also refinanced its US and Australian facilities. This provides headroom for receivables and transaction growth.
Half-year profit
The company’s group cash EBTDA (that’s EBITDA but includes interest) for the first half of FY24 is expected to be between $29 million to $33 million. This compares to a loss of $33.2 million in the first half of FY23.
Zip explained this performance was driven by a strong seasonal performance in the US business. In the first quarter of FY24, Zip’s overall cash EBTDA was $9.5 million.
Final thoughts on the Zip share price
It has done well to keep growing throughout all of the economic upheaval. Perhaps that’s representative of the strong economies in the US and Australia.
Is it a good investment today? I really don’t know, it depends if it can maintain (or improve) its margins while continuing to grow in scale (revenue). It has grown a lot, but it’s only just starting to make cash EBTDA (not net profit after tax). Zip might be able to climb from here, but I’m not sure what a good price to pay would be.
