Own Zip shares? Here's an earnings preview

Zip is releasing its half year results this week. Will it be a stunner or a fizzer?

| More on:
A young man sits at his desk working on his laptop with a big smile on his face due to his ASX shares going up and in particular the Computershare share price

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

Zip Co Ltd (ASX: ZIP) shares will be in focus later this week when the buy now pay later (BNPL) provider releases its half year results.

Ahead of the release, let's take a look at what we should be looking out for from its results on Thursday 23 February.

Zip results

Given that Zip released its second quarter update last month, there won't be too many surprises from its results.

As a reminder, the company ended the period with 7.4 million active customers. This comprises 4 million in the United States, 2.3 million in the ANZ market, and 1.1 million across its Rest of the World segment.

From these customers, Zip delivered transaction volume of approximately $4.9 billion across the first half. This was up 8.9% over the prior corresponding period.

And with the company's revenue margin improving year over year despite the tough operating conditions, Zip's first half revenue came in 16.2% higher at $351.2 million.

The big question for investors, though, is what will this top line growth and its quest to accelerate its path to profitability mean for its bottom line.

A year earlier, Zip reported a loss of $214.3 million or an adjusted loss of $153.6 million. The former includes impairments of goodwill allocated to Zip UK and global rebranding costs.

Clearly, the market is expecting much better this time around. And with management revealing that it is making "great progress" to deliver sustainable growth and accelerate its "path to profitability", the market will undoubtedly be looking for signs that this is the case.

What else?

Analysts at Citi also suggested investors look out for commentary on asset divestments with its update. Last month it commented:

The key highlight of Zip's 2Q trading update was the sharp reduction in loss rates in the US that resulted in US becoming cash flow positive in Nov/Dec. With ~$80 million in available cash and further proceeds expected from the sale of RoW businesses (CitiE: $25 million in 2H23e), we see Zip as having ample cash to reach its cashflow breakeven target.

However, we believe Zip will need further capital when the focus shifts to growth, especially when considering that it lacks scale in the US. While the company has made strong progress in reducing losses, we remain Sell/High Risk rated as we continue to see risks to customer losses given slowing macro. We open a positive catalyst watch as we expect an update on the proceeds from selling RoW businesses which could boost balance sheet.

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. has positions in and has recommended Zip Co. 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 Scott Phillips.

More on BNPL shares

A man looking at his laptop and thinking.
BNPL shares

Down 6% in a week, should you buy the dip on Zip shares?

Where to next for the BNPL player?

Read more »

A businessman stacks building blocks.
Technology Shares

Why is the Block share price rocketing 10% today?

Brokers continue to be bullish.

Read more »

A happy girl in a yellow playsuit with a zip gives the thumbs up
BNPL shares

Is this why the Zip share price keeps breaking records?

Zip shareholders have been enjoying a record breaking year. Is this why?

Read more »

A cool dude looks back at the camera while ziplining above the treetops.
BNPL shares

Why is the Zip share price on a rollercoaster today?

Zip shares are now up an eye-watering 670% in a year.

Read more »

Man holding out $50 and $100 notes in his hands, symbolising ex dividend.
BNPL shares

Owners of Zip shares are projected to start receiving dividends in the next few years

An expert is forecasting that passive income could start flowing.

Read more »

woman using affirm to pay
BNPL shares

Are Zip shares a buy following the ASX 200 stock's bumper quarter?

This stock continues to impress.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
BNPL shares

Why is the Zip share price jumping 10% today?

Let's see what is getting investors excited about this buy now pay later provider today.

Read more »

A happy girl in a yellow playsuit with a zip gives the thumbs up
BNPL shares

Here is the earnings forecast out to 2029 for Zip shares

How much could Zip’s earnings grow in the next few years?

Read more »