Z1P –7.78%: released a (surprise) interim half year update today ahead of the full report later this week. While customer numbers (9.9m) and revenue ($302.2m) were records, so too was the cash EBTDA loss of $108.1m, well above the ~$40m expected by the market. The bigger than expected loss was a result of heavy investment in international markets, and while it’s generating growth, the increased costs are a major concern and it seems to us that they’ll need to raise capital if the trend continues at such a pace. They did say they are looking to reduce costs and allocate capital towards more profitable markets in an effort to reduce the burn in the second half, however we need more detail on this. After pushing aggressively for growth, this change in tune suggests the path to create value in the business has changed and with some significant draw downs in the cash balance in the half they may be backed into another capital raising corner. On top of that they’re continuing to do due diligence on Sezzle (SZL). While a tie up would bring scale, it would also need some capital upfront to extract synergies. We will get more detail on the path ahead come Thursday.
MM remains long (& wrong) Z1P in our Emerging Companies Portfolio
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