There is a lot of misguided commentary regarding this announcement so here is my take on this.
Decline in transaction volumeTransaction volume has declined quarter on quarter but this is to be expected since the December quarter is always the biggest shopping quarter. The announcement even stated that "transactions fell marginally in the quarter in line with seasonality". The announcement concluded that "Z1P is comfortable that the annualized transaction volumes will meet or exceed the stated target".
Increase in bad debtQuote from the announcement "The small increase in write-offs reflects management's previously stated objective of managing the receivables portfolio to target levels - maximising revenue without significantly increasing bad debts and
was not related to COVID-19.
This is an extremely important point. It appears that management have made a decision to increase their risk appetite to increase revenue, which means the increase in bad debt was completely expected. In credit lending there is always a trade off on risk - return, the higher the risk appetite the higher the potential return as well as potential losses. If revenue increase outweighs the increase in losses then it's a positive for the business.
Investment in credit-decision technologyI encourage all holders to read this part of the announcement and make sure they understand what this means. This is one of the biggest and most important advantages of BNPL over traditional lenders. In particular "
Zip's ability to adjust credit scorecards in real-time and the healthy repayment profile, ensures any acquisitions or portfolio management adjustments quickly flow through the receivables book."There are more positives in the announcements including cost cutting measures but the most obvious positive is our ability to buy a burger in easy installments over many months. What a time to be alive!
The big negative for me is the inability to expand into the UK anytime soon. This will allow existing BNPL companies like Klarna and Afterpay to increase their headstart and I fear for Z1P that they might enter the market too late. Lucky for me I'm a big APT holder so to me this news is not so bad
I'd appreciate if this thread is used for detailed analysis on the business and would encourage you to save 1-liners and half-a$$ analysis for other threads. Positive and negative analysis is welcomed and encouraged.
Cheers.
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