Zip Co Limited
(ASX: ZIP ) Share Price and News
Key statistics
About Zip (ASX:ZIP)
Zip Co Limited, originally known as Zipmoney Ltd, is a BNPL (Buy Now Pay Later) company. It enables consumers to pay for goods over time, but without interest.
Zip’s Company History
Founded in 2013 as Zip Money, the company initially targeted larger purchases before introducing Zip Pay in 2014 for everyday spending. It listed on the ASX in 2015, and recorded spectacular growth over the years that followed. A key milestone was the Quadpay acquisition in 2018 which helped it enter the US.
By FY21, the company had $5.8bn in transaction volumes, 41.3m transaction numbers, 7.3m customers and $403.2m in revenue. It was the clear second player in the market, clearly behind Afterpay but ahead of other aspirants like Splitit, Humm and Openpay.
However everything changed once Afterpay was bought by Jack Dorsey’s fintech Square (since renamed Block). Afterpay then became part of a larger company and so would eat up more of the space. The era of ultra-cheap money ended with rising interest rates and inflation at levels not seen in 40 years. This meant investor sentiment weakened and the company shifted from a ‘growth at any cost’ mindset to a pivot to profitability. The company has continued to grow revenue and transaction volume, but slower than in years gone by – transaction volume only rose 7% in FY23.
Future Outlook of Zip
Zip Co’s future in 2024 appears cautiously optimistic, given the recent positive revenue growth in the US and efforts towards balance sheet optimization (namely, getting out of unprofitable markets and cutting costs). The company is expected to achieve positive cash EBITDA in the second half of 2024, signalling a potential turnaround from previous losses.
However, challenges persist, including a volatile consumer environment, intense competition in the BNPL space and lack of differentiation between players, regulatory scrutiny, and high-interest rates.
Is Zip a Good Stock to Buy?
No. We think investors thinking it can return to the $12 per share days are kidding themselves. The BNPL space is an ultra low-margin business model that could only scale in a low-interest rate environment. Investors would be better off investing in Block (ASX:SQ2) which contains Afterpay but also the successful Cash App.
Our Stock Analysis
Frequently Asked Questions
What is Zip’s primary business model?Zip Co Ltd specializes in providing Buy Now, Pay Later (BNPL) services. Their business model allows customers to purchase goods immediately and pay for them over time through structured installment plans, without the immediate financial burden. The burden is borne by the merchants who pay Zip fees for the service.
What are Zip’s major markets?Zip Co Ltd primarily operates in the BNPL sector within Australia and the Americas.
Has Zip been profitable in recent financial years?No, it has not yet recorded a full-year profit. However it hopes to be EBITDA profitable in the second half of 2024.
What challenges does Zip face in its industry?Zip operates in a highly competitive BNPL market, facing challenges from established players and new entrants that have practically no differentiation between them. Zip is also at the mercy of macroeconomic conditions.
What is the future outlook for Zip?The future outlook for Zip Co Ltd is stagnation. Afterpay (now a part of Block (ASX:SQ2)) is a much bigger and dominant business.