No worries, always happy to respectfully discuss the outlook of the company so that I can remain as well informed as possible regarding my holdings
Regarding cash EBTDA v actual EBTDA, why does it matter as long as they are consistent in their usage each report? For example, Zip has chosen to use cash EBTDA each report and I presume you acknowledge that the cash EBTDA has improved significantly over the past few years? In other words, ignoring the specific numbers for a moment, I think we can both agree that the trend is overwhelmingly positive for the company, and that if things continue in the direction they are headed they will report even better numbers next financial year.
But let's take a look at the company overall for a moment:
The top line number is essentially the TTV ($6.2 billion) - that's where everything else stems from.
This TTV then immediately translates to Revenue ($514 million) based on Zip's margin.
From Revenue we then need to look at 2 key types of expenses - the costs related to funding that revenue, and then the costs related to running the business.
So let's look at the first category of expense: Cost of Sales
Interest expense for the borrowing: $106.2 million
Net bad debts written off: $97.4 million
Bank fees and data costs: $74.9 million
That means the total cost of sales was $278.5 million
This means that after cost of sales the company has $235.5 million left
But now we need to pay the operating costs for the business as well.
Salaries: $89.7 million
Marketing: $27.5 million
IT costs: $24.1 million
Other costs: $27.2 million
That means the total operating costs was approx $168.6 million
That means after operating costs they company still has $66.9 million left
After this it's essentially irrelevant costs (e.g. one off costs) or accounting "tricks" like depreciation, amortisation etc.
Based on the above, it seems to be like the bad debts that have actually been written off are included in the data. And I don't think it makes sense to include future provisions in this data as well. The financials should show what has actually happened in my opinion, not show future predictions.
But even if we did somehow write off all the future expected losses, we would still be left with a healthy profit - especially when compared to the massive losses in previous years. And if you included the future expected losses in this report, you'd have to do the same for the previous reports - so the overall trend would still be overwhelmingly positive and in the right direction.
And you also need to factor in that they are currently in the process of turning on the growth taps again - so naturally this means a slight rise in marketing expenses and bad debts as they try to attract more customers. But as they get more customers on board, they will naturally filter out the bad customers (via bad debts) and be left with high quality customers who have been shown to use Zip repeatedly and contribute signficant revenue to the company long term. So the expenses are essentially front loaded acquisition costs, and we are yet to see the full benefit of those new customers translate to long term revenue.
Also, a big chunk of their costs are "static" costs - in other words, as they continue to grow their margins will improve. For example, their 1H25 revenue increased by $84.8 million compared to 1H24, but their cost of sales only increased by $30.3 million and their operating costs only increased by $20.4 million. This means that they were $34.1 million better off in 1H25 than 1H24. Which essentially means that for every $1 of additional revenue they generate moving forward, they see $0.40 translate to the bottom line assuming the costs scaled in a linear fashion. However, while I'd expect the cost of sales to increase fairly linearly, I believe most of the operating costs are relatively static in comparison - so I'd expect to see more than $0.40 translate to the bottom line for each $1 in revenue over the medium term.
But even if I'm wrong and all the costs scale linearly, they can still achieve massive profits by continuing to increase their revenue year on year, which they are consistently doing.
Keep in mind that independent reports show BNPL growing in popularity and usage, with forecasts showing the overall BNPL payment market will almost double over the next 5 years. So it wouldn't suprise me in the slightest to see Zip's revenues double over the next 5 years.
Another factor to consider is that there is tremendous value in having a large customer base. Zip has 6.3 million active customers. They can easily add new products for fairly cheap to capitalise on that massive customer base and grow additional revenue streams. Simple ideas off the top of my head include:
1. Partner with insurance companies as underwriters and offer insurance via their platform and take a kickback/commission
2. Sell targeted advertisements to companies/promote their positions within the app, use the customer data to keep conversions higher for ads etc
3. Create a "Savings" account within the app where people can have money deposited - essentially acting like a bank, or partnering with a bank if needed to enable this - which would help them keep their interest costs lower etc
4. Work with banks to refer their higher quality customers for home loans etc and get a kickback/commission
5. Similar to the above, but with car loans
6. Similar to the above but for accounting services, legal advice etc
I'm sure they are already working on various ideas, and have the data to support the ideas they choose to invest in - but creating additional diversified revenue streams from their massive customer base will add tremendous value over the long term in my opinion.
Regarding your comparison with Affirm, I agree in many respects with the advantages you listed. But Zip has advantages too - it is profitable compared to Affirm. Affirm was fortunate enough to have the balance sheet strong enough to keep on focusing on growth throughout Covid. Zip had unfortunately stretched itself a little thin in the pursuit of worldwide growth and as a result was harshly punished during Covid. Without covid Zip was probably making the right play by expanding quickly. But they had to pivot and as a result achieved sustainable profitability faster than Affirm. Zip also has exposure to the ANZ markets which I think is a valuable asset. Affirm may likely want to expand into Australia at some stage (I believe they already tried and had to withdraw) - and Zip's valuation is so low that Affirm could easily purchase it at a premium without hesitation and get an instant foothold in a solid international market, especially given the weak AUD.
There has never been any doubt that Affirm is far more massive than Zip, and justifies a higher multiple. I'm just not convinced the multiple should be as different as it currently is. If you get the time, I'd appreciate your thoughts on a comparison between Zip and Sezzle as I feel the two companies are far more similar, and I think it would clearly show Zip is undervalued.
Look forward to your thoughts
(20min delay)