In morning trade the Zip Co Ltd (ASX: Z1P) share price is edging lower despite the release of a strong first quarter update.
At the time of writing the buy now pay later provider’s shares are down 1% to $7.82.
How did Zip perform in the first quarter?
Zip has started the new financial year very strongly and delivered record quarterly growth during the first quarter.
For the three months ended 30 September, the buy now pay later provider reported record quarterly transaction volume of $943.1 million, up 96% on the prior corresponding period.
This led to the company reporting an 88% increase in quarterly revenue to a record of $71.7 million.
Key drivers of this growth were its strong increases in transaction and customer numbers.
Over the three months, Zip experienced a 130% year on year increase in transaction numbers and a 114% lift in customers to 4.5 million. In respect to the latter, a total of 628,000 of these customers were added during the quarter.
Pleasingly, the company’s US-based QuadPay business is performing strongly. Management revealed that it experienced record results across all core metrics.
QuadPay reported $322.5 million in transaction volume, $23.4 million in revenue, and ended the quarter with 2.2 million customers. This means almost half of Zip’s customer base is now in the United States.
Also growing strongly during the quarter were Zip’s merchant numbers. Total merchants on Zip’s platforms increased to 34,400, up 69% year on year.
Another big positive was the company’s bad debt metrics in Australia. Management advised that its Australian monthly arrears, which is a forward indicator of future losses, reduced from 1.33% in June to 0.91% in September. It (rightfully) believes this is an outstanding result in the current climate.
“Extremely exciting” product and merchant pipeline.
Management was very pleased with the quarter and appears confident that this strong form can continue.
Managing Director and CEO, Larry Diamond, commented: “We are incredibly proud of the global team with another set of record results across all key geographies – Australia, New Zealand, the United States.”
“In particular, the US demonstrated significant growth with revenue and volumes up 50% and 42% QoQ, respectively, with a number of marquee merchants going live in the quarter.”
“Locally, the product and merchant pipeline are extremely exciting, and we look forward to a number of announcements in the months ahead. The current quarter has begun solidly in all markets, which is seasonally the strongest as we run up to Prime Day, Black Friday, Cyber Monday, Christmas and Boxing Day,” he added.
Mr Diamond also commented on industry trends, noting that credit card usage is fading fast.
He commented: “Customers are continuing to increase their online spend in response to COVID-19 supported by Zip’s products that provide a better and fairer, digital alternative to the credit card. Data from the recent quarter continues to show the demise of the credit card model – in Australia, by way of example, credit card balances collapsed 24% YoY, while balances accruing interest fell 28%.”
This certainly bodes well for the Zip and rivals such as Afterpay Ltd (ASX: APT) and Sezzle Inc (ASX: SZL).
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Returns as of 6th October 2020
More reading
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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