Release Date: February 24, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zip Co Ltd (ZIZTF, Financial) reported a record financial performance for the first half of FY25, with transaction volumes reaching $6.2 billion, up 24% year-on-year.
- The US business delivered excellent results, with an 80% growth in cash earnings and a 40.3% increase in transaction volume.
- Total income increased by nearly 20% to $514 million, with a revenue margin of 8.2% remaining within the target range.
- The company achieved a cash EBTDA of $67 million, up 117% compared to the prior period, demonstrating significant operating leverage.
- Zip Co Ltd (ZIZTF) maintained strong credit performance, with credit losses improving by 22 basis points to 1.6% of TTV.
Negative Points
- The statutory net profit after tax was $23 million, lower than the previous year due to one-off gains in the prior period.
- Cash operating costs increased by 10.1% year-on-year, reflecting higher investments in growth initiatives.
- The company faces a long sales lead time for enterprise merchants, which can delay the realization of new merchant partnerships.
- There is a potential risk of increased bad debts as the company pursues growth in both regions, especially with new product launches.
- The competitive landscape in the US remains challenging, with other players like Afterpay expanding their presence.
Q & A Highlights
Q: Can you provide more details on the US business growth and its performance in January?
A: Cynthia Scott, Group CEO, stated that the momentum in the US business has continued into January, with transaction volume growth expected to outperform market levels of 30-32%, maintaining a growth rate closer to 40%. Additionally, credit losses in the US are well within the target range at 1.6% of cohort CTV.
Q: What is the outlook for the Australian business, particularly regarding capital-light solutions?
A: Cynthia Scott mentioned that Zip is moving towards capital-light solutions in Australia, leveraging their engaged customer base. Peter Gray, ANZ CEO, added that they are exploring opportunities for additional growth through strategic assets and capital-light solutions, with more details expected at the full-year results.
Q: Can you elaborate on the cash outlook of $147 million for FY25 and the expected net transaction margin?
A: Gordon Bell, Group CFO, explained that the primary focus is on achieving a cash EBTDA of no less than $147 million. The Australian business is expected to see revenue growth in the second half due to seasonality, which will positively impact margins.
Q: How is Zip managing bad debts, especially with new product launches like personal loans and Zip Plus?
A: Gordon Bell emphasized a cautious approach to new product rollouts, ensuring growth does not come at the expense of rising bad debts. Joe Heck, US CEO, highlighted their strong underwriting experience and commitment to maintaining target loss rates.
Q: What is the status of the merchant pipeline in the US, and how does it impact growth?
A: Joe Heck noted a strong pipeline of enterprise merchants, with ongoing efforts to optimize checkout experiences and leverage channel partnerships with companies like Stripe and Adyen. The integration process can take time, but they are optimistic about growth in the merchant sector.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
