Zip (ASX:Z1P) share price sinks 6% following Q4 update

This BNPL provider's shares are sinking on Thursday…

| More on:
Investor covering eyes in front of laptop

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Zip Co Ltd (ASX: Z1P) share price is under pressure on Thursday morning.

In morning trade, the buy now pay later (BNPL) provider's shares are down 6% to $7.13.

Why is the Zip share price tumbling?

The catalyst for the weakness in the Zip share price on Thursday has been the release of its quarterly update.

According to the release, Zip delivered another record performance during the fourth quarter of FY 2021. The company reported a 116% year on year increase in quarterly total transaction volume (TTV) to $1.8 billion and a 104% increase in quarterly revenue to $129.9 million. Positively, this was driven by record monthly revenue of $44.8 million in June, which annualises at $537.2 million.

The strongest growth was achieved in the United States with its QuadPay business reporting a 107% year on year increase in revenue to $64.3 million. This was supported by a 39% lift in revenue in the ANZ and a modest contribution by its fledgling UK business.

However, whilst this was strong in comparison to the prior period, its growth is slowing quarter on quarter. Revenue may have doubled year on year but it was only up 13% since the third quarter. And while this is a growth rate that many companies would be envious of, not all companies trade on such sky high multiples.

Also potentially weighing on the Zip share price was its revenue to TTV ratio. That stood at 7.2% at the end of the fourth quarter, down from 7.65% in FY 2020.

What were the drivers of its growth?

Driving Zip's growth in the fourth quarter were further increases in transactions, customer numbers, and merchants on its platform.

Zip revealed a 230% year on year increase in transaction numbers to 14.2 million for the three months, an 87% lift in customer numbers to 7.3 million, and an 84% rise in merchants to 51,300.

In respect to customer numbers, Zip now has 4.4 million in the United States, 2.8 million in the ANZ region, and approximately 70,000 in the UK.

It will be looking to add to these customer numbers in the first quarter of FY 2022 following launches in Canada and Mexico. Management notes that the Canadian market represents a US$43.6 billion ecommerce market, whereas Mexico has an ecommerce market estimated to be worth US$13.8 billion.

It is also expecting to complete the acquisition of Twisto Payments during the first quarter and Twisto during the second. This will expand its offering onto mainland Europe and into the Middle East.

Another change that is coming is the company's QuadPay business will be rebranded as Zip in August. This is part of its plan to unite its operations under a single, globally recognisable brand.

Management commentary

Zip's Managing Director and Global CEO, Larry Diamond, said: "Another outstanding set of results, including over 100% YoY growth in both revenue and TTV for the group, with record numbers delivered across the business in all regions."

"In addition to the very strong financial performance, we continued executing on our global BNPL expansion strategy across both the developed and emerging markets. We are now a truly global player with a presence in 12 markets, and this is a real point of difference as we target global retailers and fulfill our mission to become the first payment choice everywhere, every day," he added.

Despite today's decline, the Zip share price is still up an impressive 27% in 2021.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A girl is handed an oversized ice cream cone with lots of different flavours.
Best Shares

Which ASX 200 large-cap shares outperformed their peers in FY25?

Here are the top 10 ASX 200 large-cap shares for capital growth in FY25.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Broker Notes

Passive income: What's CBA's dividend outlook according to Macquarie?

Is CBA still a top passive income stock?

Read more »

A smiling woman looks at her phone as she walks with her suitcase inside an airport.
Broker Notes

Down 41% in a year, why Macquarie thinks Flight Centre shares are set to rebound

Is Flight Centre about to take off?

Read more »

A man sitting at a computer is blown away by what he's seeing on the screen, hair and tie whooshing back as he screams argh in panic.
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »

Smiling man at the wheel of a car.
Opinions

2 ASX auto stocks to buy — and 1 to sell: experts

Analysts have shared fresh insights into 3 ASX auto shares -- and not all of them are in the buy…

Read more »

A group of miners in hard hats sitting in a mine chatting on a break as ASX coal shares perform well today
Broker Notes

Does Macquarie rate Liontown Resources shares a buy, hold or sell?

Let’s find out what the broker had to say.

Read more »

A male investor sits at his desk pondering at his laptop screen with a piece of paper in his hand.
Opinions

ASX retail share whose 'fundamentals have deteriorated significantly': expert

Christopher Watt from Bell Potter explains his views on this former market darling.

Read more »

A young woman looks at something on her laptop, wondering what will come next.
Opinions

3 soaring ASX 200 large-cap shares that are now overvalued: experts

Two experts say this trio of ASX 200 large-caps have overshot and it's time to take some profits.

Read more »