Zip nails comeback, predicts huge US transaction growth

In the AFR today the below article:

Buy now, pay later provider Zip predicted transactions in the United States would rise by more than 30 per cent in the 2025 financial year as it signs up more payment providers, making it easier for US retailers to accept it.

Zip CEO Cynthia Scott. “We reinforced our positionas a strong, simplified and profitable business.” Kate Geraghty

The consumer lender, whose share price is up 240per cent in 2024, plans to nab market share for “pay in four” instalments fromBlock-owned Afterpay, Affirm and Klarna.

It will add a new “pay in 8” option in the US, anda competitive virtual credit card known as Zip Plus in Australia. It has newpartnerships with Stripe and Adyen to provide Zip to merchants.

Zip chief executive Cynthia Scott told TheAustralian Financial Review that Apple was a “potential channel partner forus”, after the and partnered with Affirm. Zip told brokers at a post-results briefing it was talking to Apple.

Zip is also eyeing a plan to link customers to homeloans, describing this as an “obvious adjacency”.

Cash earnings of $69 million for the 2024 financialyear came in at the top end of its guidance range, turning around a $48 millionloss, and marking the first year Zip reported a net profit. Revenue of $868million was up 28 per cent year-on-year, as it delivered four consecutivequarters of profitability and transactions surged 39.5 per cent to $6.5 billionin its No. 1 market, the US.
tech giant said in June it would allow iPhone users toaccess buy now, pay later directly through Apple Pay,

But as Zip pulled back on lending to more riskycustomers, given economic challenges, transactions fell in Australia and NewZealand where volumes tumbled by 14.5 per cent to $3.5 billion, and usersslipped 5.4 per cent.

Zip shares fell 8 per cent on Tuesday to $2.09,after rallying ahead of the result. It raised $217 million in a placement last month at $1.52apiece. This time last year, the stock was languishing at 33¢.

With the impact of higher interest rates oncustomers regarded as a key risk, RBC Capital Markets analyst Jack Lynch saidZip’s ability to control credit quality was positive. “Australian net bad debtsas a percentage of receivables spiked in June, although, positively, this looksto have moderated in July,” he said.

Over the year to June 30, net bad debts of 1.7 percent of transactions were down 18 basis points. Ms Scott said falling interestrates in the US would create “definite tailwinds for customers, and our ownoperational performance”.

Zip will compete more directly with banks inAustralia with its new credit card offering, which is interest-free forbalances under $1500 and carries an interest rate of 12.95 per cent on balancesbetween $1500 and $4000, lower than the 20 per cent rate charged by most banks.

Zip’s quest for profitability was realised afterco-founder Larry Diamond visited Morgan Stanley CEO James Gorman in October2021 and received a famous warning to batten down the hatches as higher interest rates loomed. This forced Mr Diamond, and the rest of the management team now led by Ms Scott, to do an about-face and abandon a strategy of growing at any cost.