The market also has a close eye on credit quality. Both the arrears rate and net bad debts were higher in the first quarter. Net bad debts of 2.44 per cent increased from 1.82 per cent at the fourth quarter of fiscal 2021, which the company said was “in line with management expectations”.
Most investors are looking past the steep statutory losses as Zip grows, preferring metrics including the value of transactions being made using Zip, and the number of “active” customers.
Sales of $1.9 billion over the first quarter was up 7 per cent quarter-on-quarter; transactions outside Australia are annualising at $4 billion. Meanwhile, active customers of 8 million were 82 per cent higher than the previous corresponding period. Of these, 5 million are in the US, up 14 per cent quarter-on-quarter, and 2.9 million are in Australia, 4 per cent higher quarter-on-quarter. Citi noted that Zip added 560,000 US customers in the first quarter, but this was the third quarter in a row that the rate of new additions slowed.
Zip is among half a dozen players in a fight for the US market while big tech players including Apple circle the sector. A Bank of America survey of the US BNPL sector sent out to clients last week showed survey respondents pointing to Afterpay and PayPal as the most widely used BNPL services in the US. The order of popularity was Afterpay, then PayPal, Klarna, Affirm, Zip and Sezzle. User interest in Affirm, Zip and Sezzle grew the fastest.
Zip co-founder Larry Diamond has been in the US for more than a month, meeting merchant customers and investors as the Australian-born sector remains in focus among Wall Street investors.
Analysts say Zip’s traction could make it attractive to a suitor, after Afterpay won over Square, which made its move on the ASX-leader in the first week of August. When that deal is complete, Square will list its securities on the ASX but its broader business model will mean investors wanting exposure to a purer buy now, pay later play will be drawn to Zip, which also has a more ambitious global plan compared to Square.
Zip has exposure to buy now, pay later in the UK, South Africa, India, Canada, Mexico, the Middle East and Europe, as new acquisitions are bedded down. Its acquisition of Spotii in the Middle East completed on Monday.
Zip’s US-based Quadpay business “has seen customer acquisition slightly better than we anticipated in the first quarter due to rebranding impacts, while the transaction value per customer improving as well,” said RBC Capital Markets analyst Chami Ratnapala.
“The rebranding campaign is underway from mid-October, and we think Zip US should benefit in the second quarter and further supported by positive reopening trends in the US. The UK region, which had a slow start in the fourth quarter, has also seen good growth, in line with our expectations.”
Zip has also announced strategic partnerships in the technology sector in recent months including with Microsoft and merchant acquirers Stripe and Adyen.
Shaw and Partners analyst Jonathon Higgins said he would likely upgrade his forecasts on the back of the quarterly update and said Zip remains “the cheapest and also the widest product platform globally” with a more attractive valuation compared to its listed peers, including Afterpay.
Zip’s Tap & Zip product, which allows users to shop anywhere that accepts Visa, landed it a spot on last week’s AFR BOSS list of the most innovative firms in banking, super and finance as it plans to add crypto assets to its app to lift customer engagement.