Zip Earnings: Profitability Should Improve, but Ongoing Market Share Loss Likely

We lower our fair value estimate for no-moat Zip by 7% to AUD 0.42 per share, largely due to a slower-than-expected improvement in gross profit margins. Fiscal 2023 cash EBTDA—Zip’s preferred measure of profitability—was negative AUD 48 million, with the second-half loss being reduced by 55% from the first half. This was mainly from lower-than-expected operating costs, which we view as a lower recurring driver of profitability relative to gross profits. Meanwhile, gross profits were 6% below our forecast, largely due to higher bad debts and the slower pace of processing cost-savings.