Zip shares rocket 17% on ‘outstanding’ quarter

Zip Co Ltd (ASX: ZIP) shares are starting the week with a bang.

In morning trade, the buy now pay later provider’s shares are up 16% to 73.5 cents.

Why are Zip shares jumping?

Investors have been buying the company’s shares this morning after responding positively to the release of a quarterly and half year update.

According to the release, for the second quarter, Zip delivered an 8.5% lift in transaction value over the prior corresponding period to $2.8 billion.

And thanks to a material improvement in its revenue margin to 8.2% (from 7.1%), Zip’s revenue was up 26.1% to $225.6 million for the quarter. This was driven by strong performances across both the Americas and ANZ markets, which reported revenue growth of 35.5% and 20.4%, respectively.

This ultimately supported “outstanding” cash EBTDA during the quarter according to management. Zip’s Group CEO and Managing Director, Cynthia Scott, said:

Zip delivered an outstanding Group cash EBTDA result for the second quarter, underpinned by a particularly strong seasonal performance in US TTV, the resilience of the ANZ business, improved margins and continued cost discipline.

As a result, the company’s group cash EBTDA for the first half of FY 2024 is expected to be between $29 million and $33 million. This compares favourably to a cash EBTDA loss of $33.2 million during the first half of FY 2023.

Another positive potentially given Zip’s shares a boost was its bad debts. It advised that US bad debts continued to perform well with monthly cohort loss rates approximately 1.3% – 1.4% of total transaction value. This is below the target range of 1.5% -to 2.0%. In Australia, net bad debts improved by 54bps quarter on quarter to 3.64% of receivables.

Self-sustaining business

Scott believes that this result demonstrates that Zip is now a self-sustaining business. She adds:

Today’s result reinforces that Zip is delivering as a self-sustaining business. Group revenue grew by 26.1% and revenue margins were 8.2%, up 110bps versus 2Q23. Cash transaction margin improved 70bps versus 2Q23 to 3.5%, demonstrating the strength of the business model in a challenging external environment.

At the end of the period, Zip had $81.3 million in available cash and liquidity, which is an increase from $53.2 million on 30 September 2023.

The post Zip shares rocket 17% on ‘outstanding’ quarter 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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