The Zip Co Ltd (ASX: ZIP) share price has fallen 20% after providing its FY25 second quarter update.
Zip is one of the largest buy now, pay later businesses in Australia and the US.
FY25 second quarter update
In the three months to December 2024, total transaction value (TTV) grew by 24.8% to $3.4 billion and this helped revenue soar 20.5% to $269.4 million. This update comes after previous growth in the FY25 first quarter.
US revenue grew by 41.6% year on year to $165.6 million, but Australian revenue was down 2.7% to $103.8 million.
US active customers increased 6.2% year on year to 4.2 million, while ANZ customers fell 6.2% year on year to 2.1 million.
Zip reported its Q2 quarterly cash EBTDA grew 50.2% year on year to $35.3 million, but the revenue margin declined to 7.9%, down from 8.2% in FY24 Q2.
Net bad debts were approximately 1.5% of TTV in the FY25 second quarter, down from 1.7% of TTV in the second quarter of FY24. I think this is a key influence for the Zip share price.
Management comments
The Zip CEO and managing director Cynthia Scott said:
These results reinforce our ability to drive ongoing operating leverage and deliver on our significant growth opportunity.
Our strong performance was driven by outstanding US growth, with year on year TTV and revenue growth of 38.3% and 41.0% respectively, driven by an exceptional holiday trading period which included the single largest trading day and month in Zip’s history. Importantly, we are meeting the needs of our customers, with US customer engagement growing strongly and the business delivering a second consecutive quarter of active customer growth, up 7.0% quarter on quarter and 6.2% year on year.
ANZ TTV returned to growth year on year, driven by a strong increase in transaction numbers. Our focus on margin improvement and the rollout of Zip Plus has delivered an increase in the Australian portfolio yield, up 110 basis points year on year to 18.6%, another strong result in a high interest rate environment. The business is well-positioned to deliver on further product innovation and marketing initiatives in the second half of FY25 to drive profitable growth.
We remain focused on delivering our FY25 strategic priorities of growth and engagement, product innovation and operational excellence and fulfilling our purpose of unlocking financial potential, together.
Final thoughts on the Zip share price
Zip is now a lot cheaper, but continues growing. It’s not the sort of business I’d put in my own portfolio, but with profit continuing to grow it could be one to watch in the coming years.
At this lower price, it could be an opportunity for a brave investor, but it’s not the sort of investment I’d go for in my own portfolio.
