Zip Earnings: Extracting Profitability From Defensive Measures That Are Likely Not Maintainable

No-moat Zip reported an AUD 31 million cash EBTDA for the first half of fiscal 2024, a vast improvement from a loss of AUD 33 million in the previous corresponding period. However, we’re not yet convinced this earnings growth is maintainable. Transaction volume and earnings improvements did not come from strengthening switching costs or network effects. Instead, they were driven by defensive measures like higher user fees, cost reductions, and selective customer onboarding. While these measures may appease investors seeking profitability, implementing them in a commoditized market could undermine Zip’s long-term competitive position.