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Zip Co Ltd (ASX:ZIP), a leading player in the buy now, pay later (BNPL) sector with significant operations in both Australia and the US, saw its share price fall by 8% following the release of its FY24 results. Despite strong growth in revenue and transaction volumes, the company's overall performance reflected mixed outcomes.
FY24 Financial Highlights
For the financial year ending June 30, 2024, Zip Co reported several notable figures:
- Revenue: The company achieved a revenue increase of 28.2%, reaching $868 million.
- Total Transaction Volume (TTV): TTV rose by 14% to $10.1 billion, demonstrating strong transaction activity.
- Group Cash Earnings Before Tax, Depreciation, and Amortisation (EBTDA): There was a significant boost of 243.2%, with cash EBTDA climbing to $69 million.
- Cash Net Transaction Margin (NTM): The margin improved to 3.8%, up by 0.96 percentage points.
- Net Bad Debts: Represented 1.7% of TTV, indicating some challenges in debt management.
- Statutory Loss After Tax: The company reported a small loss of $0.4 million.
Additional positives included an increase in the number of merchants by 9.6% to 79,300 and a 52.8% rise in cash gross profit to $372.9 million. The revenue margin also improved by 0.96 percentage points to 8.7%. However, active customer numbers saw a decline of 2.9%, dropping to 6 million.
Regional Performance
- Zip Americas: This segment saw a remarkable 420% increase in cash EBTDA, reaching $77.2 million. Growth was attributed to higher-margin channels like the app and physical card, coupled with improved margins and operational leverage.
- Zip ANZ: Cash EBTDA in the Australia and New Zealand segment rose by 137.4% to $33 million.
- Corporate and Non-Core: This segment reported a cash EBTDA of $41.1 million.
Strategic and Financial Developments
Zip Co has focused on strengthening its balance sheet, including converting or extinguishing all convertible notes. In July 2024, the company undertook an institutional capital raising to repay a $130 million debt facility and its associated exit fee.
Looking ahead, Zip Co plans to improve its cost of sales through scaling while balancing TTV growth with credit performance. The company expects its share of revenue from the US to grow, with a positive TTV growth outlook for FY25. Additionally, Zip Co is aiming to invest in innovation, develop capital-light propositions, and achieve a cash EBTDA margin of at least 1% in FY25, up from 0.7% in FY24. The company targets a cash EBTDA to revenue margin of between 12% and 17% over the next two years, compared to 7.9% in FY24.
Zip Co has shown impressive growth in several key areas, the decrease in active customer numbers and ongoing challenges in debt management have impacted investor sentiment. As the company continues to focus on scaling and improving profitability, it remains a notable ASX share to watch.
