Zip share price charges 13% higher on Q1 update

The Zip Co Ltd (ASX: ZIP) share price is charging higher in morning trade.

At the time of writing, the buy now pay later (BNPL) provider’s shares are up 13% to 72.5 cents.

Why is the Zip share price charging higher?

The catalyst for the rise in the Zip share price today has been the release of the company’s first quarter update.

Here’s how it performed compared to the prior corresponding period:

• Transaction volume up 15% to $2.2 billion
• Transaction numbers up 33% to 19.6 million
• Revenue up 19% to $163.2 million
• Cash transaction margin steady at 2.2%
• Customer numbers up 50% to 12 million
• Active customers up 17% to 7.4 million
• Merchants up 70% to 94,100

What happened during the quarter?

For the three months ended 30 September, Zip reported a 15% increase in transaction volume to $2.2 billion and a 19% lift in revenue to $163.2 million. The latter reflects flat year on year revenue of $66.9 million in the US despite currency tailwinds and a 29% increase in ANZ revenue to $83 million.

Zip’s growth was underpinned by a 17% increase in active customers to 7.4 million, a 33% jump in transaction numbers to 19.6 billion, and a steady revenue margin of 7.4%.

As you might have noticed above, Zip has now split its customer numbers into two groups. An active customer is one that has transacted within the last 12 months, whereas a regular customer is one that has an open account. They may not have transacted in the last 12 months, but they still have the ability to do so.

Another positive is that the Zip US business saw credit loss rates decrease to 2.4% of total transaction value from 2.7% in the previous quarter. It also exited the quarter with an expected loss rate of below 2% for the September cohort, in line with target levels.

Finally, at the end of September, Zip had available cash and liquidity of $140.7 million. Management believes this will be sufficient to support the company through to cash EBTDA profitability.

Management commentary

Zip’s co-founder and Global CEO, Larry Diamond, was pleased with the progress the company is making. He said:

We are pleased to deliver another solid set of numbers as Zip resets and moves toward positive cash flow, taking control of our future. During the quarter we made great progress on our refreshed strategy to deliver sustainable growth, right-size our global cost base and accelerate our path to profitability.

With a more focused strategy on our core markets ANZ and the US, we substantially lowered credit losses, repaid $40m of debt, and completed an upsized $300m receivables funding transaction, demonstrating the resilience of the business model in the face of ongoing external volatility.

Mr Diamond also highlights that the cost of living crisis has supported demand for its offering. He said:

We continue to add new customers to the platform and provide increased benefits to both customers and merchants as they navigate a rising cost environment.

The underlying business remains strong, and with the simplification of the business following adjustments to strategy, we are well funded and positioned to execute ahead of seasonal peak volumes and beyond into H2 FY23. Zip’s simple, fair and easy to use product is becoming even more important to customers and we are well on our way to disrupting the traditional credit card model and providing people with control of their financial lives.

The post Zip share price charges 13% higher on Q1 update appeared first on The Motley Fool Australia.

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• After a horror year, what’s next for ASX BNPL shares in the new quarter?
• ‘Significant opportunity’ Zip share price turns red as CEO packs his bags for the United States
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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