It has been a volatile day of trade for the Zip Co Ltd (ASX: Z1P) share price following the release of its fourth quarter update.
The buy now pay later provider's shares have been up as much as 6.5% to $7.50 and down as low as 6% to $6.50 this morning.
At the time of writing the Zip share price is roughly flat at $7.02.
How did Zip Co perform in the fourth quarter?
During the fourth quarter, the Afterpay Ltd (ASX: APT) rival reported revenue of $44.2 million on transaction volume of $570.7 million.
This represents a 64% and 62% increase, respectively, on the prior corresponding period. It is also a lift of 5% and 10% from the third quarter.
Zip's strong growth during the quarter was driven by a 60% lift in customer numbers to 2.1 million and an 81% jump in transaction numbers to 2.9 million. Both figures are in comparison to the fourth quarter of FY 2019.
One slight disappointment during the quarter was an increase in net bad debts. This metric lifted to 2.24%, from 1.84% in the third quarter and 1.63% from the same period last year. Though, positively, its arrears metric has been on the decline. Given that this is a leading indicator for future bad debts, this is great to see.
What about the full year?
For FY 2020, annualised transaction volume was ~64% higher year on year and $100 million ahead of target at $2.3 billion. This led to a 72% year on year increase in revenue to $161.2 million.
The figures above do not include the proposed acquisition of U.S. based QuadPay. Post completion, Zip will have pro-forma annualised transaction volume of $3.2 billion, annualised revenue of $252 million, and more than 3.9 million customers.
This transaction is subject to a number of closing conditions, including shareholder approval at the EGM which is expected to be held next month.
Zip's Managing Director and CEO, Larry Diamond, was rightfully pleased with the company's performance in FY 2020.
He said: "We are very pleased with the results for the full year FY20, and in particular Q4, as Zip continued to deliver on its ANZ strategy whilst accelerating its global growth ambitions. This was testament to the hard work of the entire Zip team and the support of our 24.5k retail partners."
"The business model was tested during COVID-19 and proved extremely resilient – in terms of transaction volume, strong revenue mix and outstanding customer repayment performance. Our product differentiation, strong proprietary credit platform and penetration into defensive, everyday spend categories delivered in spades."
Outlook.
No guidance or targets were given for FY 2021 at this point, but are likely to be unveiled with its results release next month.
Nevertheless, Mr Diamond appears confident that Zip's growth can continue.
He said: "We continue to believe the credit card model is fundamentally broken with customers demanding flexible, responsible, interest free alternatives – the flight to BNPL is indeed a global trend."
"The recently announced QuadPay transaction is an important step in our global expansion and provides access to the world's largest retail market, the USA ($5tr and 15x Australia) during a time when interest-free instalments are transforming the way people pay. We look forward to the EGM in August and completing the transaction," he concluded.
