Company Reports

Zip's fiscal 2026 underlying profit more than doubled to AUD 116 million. More customers spending more frequently propelled total transaction value up 27%, and with costs up much less, operating margins expanded materially. Shares jumped almost 20% on the result.

Zip has benefited from growth of e-commerce and those in younger demographics, who are either unable to access credit or view traditional credit cards as complicated and expensive. Signing up takes minutes, and the advantage of giving shoppers a way to smooth out expenditure has resulted in merchants reporting increased sales and fewer shoppers abandoning their purchases at checkout. Zip gets paid from merchants and customers. Integrated merchants that offer Zip as a payment option pay Zip a fee as a percentage of the purchase value, and when they use the Zip marketplace for promotions. Customers pay establishments fees, interest, monthly fees, and late fees. Customers tend to increase usage over time, as shoppers become more comfortable with the product, and Zip increases the customer's credit limit based on strong repayment history. This results in larger average spending per customer, a trend we expect to continue.

Zip's third-quarter fiscal 2026 cash EBTDA increased 42% on the same period last year to AUD 65 million, driven by customer growth and margin expansion. Management also upgraded full‑year guidance to at least AUD 260 million, up from around AUD 250 million previously. Shares jumped 14%.

Zip has benefited from growth of e-commerce and those in younger demographics, who are either unable to access credit or view traditional credit cards as complicated and expensive. Signing up takes minutes, and the advantage of giving shoppers a way to smooth out expenditure has resulted in merchants reporting increased sales and fewer shoppers abandoning their purchases at checkout. Zip gets paid from merchants and customers. Integrated merchants that offer Zip as a payment option pay Zip a fee as a percentage of the purchase value, and when they use the Zip marketplace for promotions. Customers pay establishments fees, interest, monthly fees, and late fees. Customers tend to increase usage over time, as shoppers become more comfortable with the product, and Zip increases the customer's credit limit based on strong repayment history. This results in larger average spending per customer, a trend we expect to continue.

Zip has benefited from growth of e-commerce and those in younger demographics, who are either unable to access credit or view traditional credit cards as complicated and expensive. Signing up takes minutes, and the advantage of giving shoppers a way to smooth out expenditure has resulted in merchants reporting increased sales and fewer shoppers abandoning their purchases at checkout. Zip gets paid from merchants and customers. Integrated merchants that offer Zip as a payment option pay Zip a fee as a percentage of the purchase value, and when they use the Zip marketplace for promotions. Customers pay establishments fees, interest, monthly fees, and late fees. Customers tend to increase usage over time, as shoppers become more comfortable with the product, and Zip increases the customer's credit limit based on strong repayment history. This results in larger average spending per customer, a trend we expect to continue.

Zip's first-half fiscal 2026 cash EBTDA rose 86% year on year to AUD 124.3 million, mainly driven by a 44% increase in US total transaction volume. Management expects full-year cash EBTDA/TTV to exceed 1.4%, versus 1.3% previously. However, shares went the opposite way, crashing 34%.

Zip has benefited from growth of e-commerce and those in younger demographics, who are either unable to access credit or view traditional credit cards as complicated and expensive. Signing up takes minutes, and the advantage of giving shoppers a way to smooth out expenditure has resulted in merchants reporting increased sales and fewer shoppers abandoning their purchases at checkout. Zip gets paid from merchants and customers. Integrated merchants that offer Zip as a payment option pay Zip a fee as a percentage of the purchase value, and when they use the Zip marketplace for promotions. Customers pay establishments fees, interest, monthly fees, and late fees. Customers tend to increase usage over time, as shoppers become more comfortable with the product, and Zip increases the customer's credit limit based on strong repayment history. This results in larger average spending per customer, a trend we expect to continue.

We initiate coverage on Zip, a major buy now, pay later company in Australia that has expanded into the US. Zip has benefited from the growth of e-commerce and from those in younger demographics who are either unable to access credit or view traditional credit cards as complicated and expensive.

As foreshadowed in our research report published on June 5, 2024, we cease coverage on Zip. We provide analyst research and ratings on more than 1,600 companies globally and periodically adjust our coverage according to client demand, investor interest, and staffing.

We will discontinue analyst coverage of Zip on or about June 25, 2024. Accordingly, we place Zip's fair value estimate under review. We provide analyst research and ratings on more than 1,600 companies globally and periodically adjust our coverage according to client demand, investor interest, and staffing.

Zip’s business is more diversified than single-product buy now, pay later, or BNPL, players, with varieties in financing options, transaction limits, and repayment schedules.

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.

Zip’s business is more diversified than single-product buy now, pay later, or BNPL, players, with varieties in financing options, transaction limits, and repayment schedules.

We trim our fair value estimate on Zip by 5% to AUD 0.40 per share after lowering our projected transaction volumes. Price elasticity is notably high for a no-moat business like Zip. As the group continues to implement fee increases to bolster profitability amid rising interest rates, we expect this to adversely affect transaction volumes. This is due to the availability of alternative buy now, pay later tools and the looming prospect of a downturn in consumer spending. We retain our Extreme Morningstar Uncertainty Rating.

Zip’s business is more diversified than single-product buy now, pay later, or BNPL, players, with varieties in financing options, transaction limits, and repayment schedules.

Zip’s business is more diversified than single-product buy now, pay later, or BNPL, players, with varieties in financing options, transaction limits, and repayment schedules.

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.

We recommend shareholders of no-moat Zip vote in favour of the conversion of Zip’s restructured convertible note into shares. We also recommend approving the two institutional share placements that were recently undertaken to provide cash incentives to Zip’s debtholders, as these helped with gaining their consent for Zip’s debt restructure. However, we recommend voting against resolutions relating to share issuances to both the sellers of The Urge and Twisto. Zip will hold an extraordinary general meeting on July 31, 2023 for shareholders to vote on these matters. We retain our AUD 0.45 fair value estimate.

Zip’s business is more diversified than single-product buy now, pay later, or BNPL, players, with varieties in financing options, transaction limits, and repayment schedules.

We keep our fair value estimate of AUD 0.45 per share for no-moat Zip. Its recent convertible note restructuring, which will result in debtholders receiving less than the originally lent amount, represents a soft default. The existing AUD 330 million convertible note would be reduced to a new AUD 138 million note with revised terms—including a new conversion price (about AUD 0.52) that more closely resembles Zip’s latest closing price (AUD 0.50), instead of north of AUD 12 prior. The restructuring would be facilitated by initially converting about AUD 40 million of debt into shares and paying debtholders cash incentives that are funded by institutional investors. This follows a similar convertible note restructuring in December 2022.