The Zip Co Ltd (ASX: ZIP) share price is trading lower on Thursday.

In morning trade, the buy now pay later (BNPL) provider’s shares are down 2.5% to 55 cents.

This follows the release of the company’s half-year results today.

Zip share price lower on big loss

• Half-year revenue up 19% to a record of $351 million
• Net transaction margin (NTM) up 20 basis points to 2.5%
• Group credit losses down 50 basis points to 1.9% of total transaction value (TTV)
• Cash gross profit up 20% to $121.7 million
• Core cash EBTDA loss of $33.2 million
• Loss after tax of $242.5 million
• Cash and cash equivalents of $153.9 million

What happened during the half?

For the six months ended 31 December, Zip reported a 19% increase in revenue to a record of $351 million. This reflects a 10% increase in TTV to $4.9 billion and a 50 basis point increase in its revenue margin to 7.1%.

Underpinning its TTV growth was a 4% lift in active customer numbers to 7.3 million, a 20% jump in merchant numbers to 97,500, and a 17% increase in transaction numbers to 42.2 million.

Combined with its cost reductions and improving margins, this ultimately led to a $27.3 million improvement in its core cash EBTDA to a loss of $33.2 million from a loss of $60.5 million a year earlier.

Finally, on the very bottom line, Zip reported a loss after tax of $242.5 million. This includes a number of items such as merger termination fees, incentive payments, effective interest on convertible notes, and goodwill impairment.

At the end of the period, Zip had a cash and cash equivalents balance of $153.9 million. It believes this leaves it well funded with sufficient available cash and liquidity to deliver on its target of positive group cash EBTDA during FY 2024.

Particularly given that Zip US and NZ remain on track to exit FY 2023 with positive cash EBTDA on a sustainable basis, along with Zip’s AU business which has been cash flow positive for four years.

In addition, the company has completed the strategic review of its rest of world and non-core operations and is now taking action to divest, restructure, or wind down these businesses. This is expected to neutralise cash burn and deliver additional cash inflows during the second half.

Management commentary

Zip’s Co-Founder and Global CEO, Larry Diamond, was pleased with the half. He said:

We are pleased to deliver another strong set of results driven by record transaction volumes and revenue, and improved credit losses and margins. Zip continues to accelerate its path to profitability as we execute on our strategic priorities of sustainable growth, a focus on our core markets and right-sizing our cost base.

Although topline growth has been tempered by deliberate adjustments to risk settings, our strong net margin performance is a very clear proof point of the successful execution of our strategy to increase revenue margins and reduce credit losses. We continue to streamline our business, with Cash EBTDA used in core markets and corporate costs improving by $27.3m to ($33.2m) for the half. We expect this to improve further again in the second half of FY23 and this very strong result has us well and truly on the path to positive group cash EBTDA during HY24.

Outlook

Management provided a short update on its performance so far in the second half.

It advised that trading was strong in January, with TTV up 9%, revenue up 12%, and its cash NTM at 3.5%.

It also revealed that its US net bad debts for January was trending at 1.4% of TTV on a cohort basis.

The post Zip share price lower on $243m first-half loss appeared first on The Motley Fool Australia.

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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 Zip Co. 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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