The Zip Co Ltd (ASX: ZIP) share price is up 16% after announcing its FY26 third quarter and upgraded guidance.
Zip is one of the larger buy now, pay later businesses in Australia and the US.
FY26 third quarter
The buy now, pay later business reported that its total transaction value (TTV) grew by 22.4% to $4 billion, helping total income grew 20.2% to $335.2 million.
Zip’s active customers grew by 3.5% year on year to 6.5 million and the number of merchants on the Zip platform rose by 3.5% to 6.5 million.
Its revenue margin decreased to 8.4%, down from 8.6% in the third quarter of FY25. Zip also reported “significant” operating margin expansion to 19.4% (up from 16.5% FY25’s Q3) and the cash net transaction margin (NTM) was maintained at 3.9%.
Its cash EBTDA (EBITDA explained, but interest is included) rose by 41.5% to $65.1 million, showing operating leverage by the business.
Zip reported that net bad debt was 1.9% of TTV (compared to 1.6% of TTV in the third quarter of FY25) “in line with management targets and strategic settings, including US net bad debts remaining steady at 1.86% of TTV”. Net bad debt increased from 1.8% in the second quarter of FY26.
Specifically in the US, revenue grew 29.3% to $223.9 million with TTV growth of 29% to $3.05 billion. The cash NTM declined by 24 basis points (0.24%), though it was up 34 basis points (0.34%) quarter on quarter.
Outlook for the Zip share price
Zip said that it was upgrading its FY26 cash EBTDA will be no less than $260 million. Previously, the FY26 second half cash EBTDA was expected to broadly in line with the first half cash EBTDA of $124.3 million.
It expects to deliver US TTV growth of at least 40% in US dollar terms, balancing profitability and credit loss performance.
Zip is expecting a group revenue margin of around 8%, a cash net transaction margin of between 3.8% to 4.2%, an operating margin of more than 18% and a cash EBTDA as a percentage of TTV to be more than 1.4%.
With it still down more than 50% in the past six months, it could still be an undervalued opportunity. But, it’s worth considering how much further TTV will grow when there are multiple players.
