The Zip Co Ltd (ASX: ZIP) share price fell 8% today after investors saw the FY24 result.
Zip is one of the largest buy now, pay later businesses in Australia, and it has a large presence in the US.
FY24 result
Here are some of the main highlights from the FY24:
- Revenue increased 28.2% to $868 million
- Total transaction volume (TTV) rose 14% to $10.1 billion
- Group cash earnings before tax, depreciation and amortisation (EBTDA) jumped 243.2% to $69 million
- Cash net transaction margin (NTM) of 3.8% (up 96 basis points (0.96%)
- Net bad debts of 1.7% of TTV
- Statutory loss after tax of $0.4 million
There were a number of other positives from the result, including the number of merchants rising 9.6% to 79,300, cash gross profit increasing 52.8% to $372.9 million and the revenue margin improving 96 basis points (0.96%) to 8.7%.
However, active customer numbers decreased by 2.9% to 6 million.
Zip Americas cash EBTDA increased 420% to $77.2 million and Zip ANZ cash EBTDA rose 137.4% to $33 million. The business also reported a figure of $41.1 million for corporate and non-core at the cash EBTDA line. These profit numbers are a key focus for the Zip share price, in my opinion.
Zip America benefited from growth in higher margin channels, like the app and physical card, as well as improvements in margins and increased operating leverage.
The business said its balance sheet was further simplified and strengthened following all convertible notes being converted or extinguished. In July 2024, the company carried out an institutional capital raising to repay the $130 million outstanding debt facility and associated exit fee.
Outlook for the Zip share price
The company said it’s looking to improve its cost of sales through scale, while balancing TTV growth with its credit performance.
The share of revenue in the US is expected to increase, with the US TTV growth outlook for FY25 “above average”.
It’s also planning to make a measured investment in innovation and capability building, develop capital-light propositions and deliver a cash EBTDA of at least 1% in FY25, compared to 0.7% in FY24.
Zip is also hoping to improve its revenue to cash EBTDA conversion. It’s guiding for a cash EBTDA to revenue margin of between 12% to 17% on a two-year outlook, up from 7.9% in FY24.
The company is targeting significant cash EBTDA and free cash flow generation as the business scales.
Zip is an interesting ASX share, but it’s not the type of business I typically buy for my own portfolio, so I’m happy to wait on the sidelines.
