The Zip Co Ltd (ASX: Z1P) share price has dropped lower on Wednesday following the release of its first quarter update.
At the time of writing the payments company's shares are down 3% to $4.36.
How did Zip Co perform in the first quarter?
This morning Zip Co revealed that it has had a strong start to FY 2020.
According to the release, the company achieved record quarterly revenue of $31 million. This was a 107% increase on the prior corresponding period and a 15% lift on the previous quarter.
Zip Co also more than doubled its receivables and transaction volume during the quarter. Receivables increased 118% on the prior corresponding period to $783.6 million and quarterly transaction volume lifted 111% to a record of $402.1 million.
This was driven by a 55% lift in merchants to 17,890 and a 66% jump in customer numbers to 1,414,584. The latter was despite the company closing 57,331 accounts as a result of a one-off exercise to close aged accounts with zero balances.
One slight disappointment was a reduction in its cash EBTDA as a percentage of average receivables. This fell from 2.2% in the fourth quarter of FY 2019 to just 1% in the first quarter.
Management advised that this was result of its revenue yield sliding ever so slightly from 17% to 16.8% and a rise in cash cost of sales and cash operating costs. The latter was driven by growth initiatives.
This includes increased spending on brand and marketing in the quarter in preparation for initiatives in the second quarter – the seasonally strongest quarter. Also contributing was a permanent headcount increase, predominantly in the areas of product and engineering.
One key metric that is hugely important for Zip Co, and rivals Afterpay Touch Group Ltd (ASX: APT) and Sezzle Inc (ASX: SZL), is its bad debt.
Net bad debt write-offs (bad debts written-off less bad debt recoveries) stood at 1.68% at the end of the quarter. This compares to 1.63% at the end of the fourth quarter of FY 2019. Gross bad debt write offs were 1.95%, compared to 1.82% in the prior quarter. And reported arrears were 1.75%, compared to 1.89% at the end of the previous quarter.
Outlook.
Management appears confident the company is well-positioned for both growth and to respond to any changes to regulations. In fact, in respect to regulatory changes, the company believes it can satisfy any changes with little-to-no disruption to its business model.
Looking ahead, the company continues to target 2.5 million active customers and annualised transaction volumes of $2.2 billion by the end of FY 2020.
