No Surprises From Zip’s Quarterly Update: the Fundamentals Haven’t Changed

We marginally lift our fair value estimate on no-moat Zip to AUD 4.90 per share from AUD 4.70, after factoring in greater customer penetration in the U.S. The firm’s impressive second-quarter fiscal 2021 update highlighted ongoing stellar growth in total transaction volume, or TTV, transaction numbers, revenue, and customers, relative to the previous corresponding period, or pcp. This is to be expected from an emerging growth firm like Zip. A notable development has been Zip’s increasingly aggressive marketing and promotional efforts, which fuel TTV growth but could potentially aggravate revenue margins and credit quality.