The Zip Co Ltd (ASX: ZIP) share price is in focus after the buy now, pay later business announced its FY25 first quarter update.
Zip FY25 first quarter update
Zip told the market how it performed in the three months ending 30 September 2024.
The company has been working on being more profitable and this is showing up in the financial numbers.
It reported that its cash EBTDA (EBITDA but without the I – interest) soared 233.7% year on year to $31.7 million. I think this is a great sign for the longer-term direction of the Zip share price.
That increase of profit came after Zip’s total transaction value (TTV) grew by 22.8% to $2.8 billion. This helped revenue jump 18.8% to $239.9 million, though the revenue margin decreased to 8.5% (down from 8.8%). The number of transactions increased 18.1% to 21.3 million.
Other profitability metrics also went in the right direction. Zip’s net bad debts were 1.6% of TTV, compared to 1.9% of TTV in the first quarter of FY24. It also reported that its cash transaction margin was 3.9% in the FY25 first quarter, up from 3.6% a year ago.
The US was the major driver of this result, with 40.5% revenue growth year on year to $137.4 million, while Australian revenue decreased 1.5% to $102.5 million.
While active customer growth has slowed, it has continued rising. Active customers rose to 6.08 million at the end of September 2024, up 1.1% from the fourth quarter of FY24. US active customers rose 2.6% year on year to 3.94 million, while ANZ active customers fell 7% to 2.14 million.
The number of merchants on Zip’s platforms increased 7% year on year to 80,100, including Cathay Pacific, GameStop and Major Baseball Ticketing and the Major League Baseball shop.
Another highlight for the business was that it repaid all existing corporate debt after doing a capital raising.
Final thoughts on the Zip share price
Zip shares have delivered an astonishing performance on the past year, rising over 800%. The market is very aware of the company’s improved profitability.
It’s very hard to say what a good price for Zip shares is. If it can keep growing in the US, it could be undervalued, but it’s struggling in ANZ. I think Zip will need to continue growing earnings to deliver growth for investors. But, it seems there is less competition in the BNPL space after the disruption of the last couple of years.
There are other ASX growth shares I’d rather buy.
