The BNPL company was down -10.9% yesterday, hitting 6-week lows on the day it announced an upgrade to FY24 guidance on a largely strong 3Q update. Brokers have upgraded Zip overnight on the back of the update despite the weak trading yesterday. The company managed $20.1m in Cash EBITDA last quarter, comparing strongly to the $21m posted in the 2Q despite coming in a far weaker period from a seasonal perspective. As a result of the strong number, the company upgraded guidance for 2H Cash EBITDA to now be at least in line with 1H, previously expecting a slight fall.
The positive move was driven by two aspects, exceptional growth out of the US and higher revenue margins (revenue as a % of underlying transaction value) in the ANZ arm. US Total Transaction Value (TTV) grew 44% vs 3Q23, an acceleration from the already strong 32% in the 2Q thanks to new merchants and a successful Google Pay partnership. Despite the growth, net bad debts remained flat on the period, staying around 1.3% across the first 3 quarters of FY24.
Locally, ANZ revenue margins were up 360bps vs 3Q23, driven by strong take up of their Zip Plus product & revenue was still up 9.3% on pcp despite TTV falling 21.1%. The falling transaction numbers can largely be attributed to tighter credit requirements, a move that will serve the company well if/when consumers become overly squeezed.
Despite all the good news, Zip fell to six-week lows and now looks likely to test the 80c level again. The medium-term/fundamental picture is bullish, though, with profitability from a Free Cash Flow perspective now not too far away.
- Zip remains on the Emerging Companies portfolio Hitlist, ideally looking for an entry ~80c
MM is bullish ZIP medium-term
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