Hi Wayne,
The BNPL space has enjoyed somewhat of a renaissance, carrying Zip’s shares to 18-month highs, up 4-fold from lows hit in October last year, only six months ago. The rally has certainly been supported by a shift in interest rate expectations, with cuts now seen by the end of this year. However, there has also been a shift in the underlying business in that time as well. As conditions tightened, investors shied away from loss-making tech companies, Zip also faced concerns of higher defaults.
The reality, though, as the company’s first-half result showed, was that the economic environment wasn’t as bad as expected, and Zip was taking advantage. Operating expenditure fell 4% in the first half, while financing costs, bank fees, marketing and employee costs came in better than expected. Loss provisions were also a strong beat; Zip reported a strong $120m in EBITDA on the back of it.
The second half is seasonally weaker, mainly due to the retail trading conditions in the first half (Black Friday & Christmas trade). However, a beat on costs and momentum in the US & new products has set the company up well. There is more work to do, particularly on funding costs; however, for the first time in a few years, Zip has shown the ability to reframe the business and set up operations for profitability.