Zip –29.47%: Got hit today, down ~50% in early trade after flagging A$10.1m in expenses linked to an external fraud incident in the US, adding to concerns and credit risk.
Zip now expects A$10.1m in fraud-related expenses, with net bad debts rising to 1.97% of total transaction volume in the September quarter, up from 1.65% a year earlier. The US bad debt rate was 1.93%.
This is a disappointing update for Zip, with the share price reaction reflecting more than the immediate financial cost of the fraud. However, the bounce in share price is testament to the demand for the stock and overreaction of the initial open.
The increase in bad debts adds a layer of concern, although Zip attributed the US result partly to seasonality. With the US business responsible for a substantial share of revenue, execution risk will be scrutinised heavily moving forward.
The key question is whether this remains an isolated incident or points to broader weaknesses that could affect customer growth and credit performance. We would want to see evidence that controls have been strengthened and bad debts stabilise before looking through this as simply a one-off setback.
MM remains long but cautious toward ZIP
Add To Hit List
