Zip shares crash on results announcement as bad debts jump

Shares in BNPL Zip crashed nearly 8% today after the company released its Q4 trading update.

The fintech (ASX: Z1P) painted a rosy growth picture, but analyst nemesis UBS said the 4Q volumes “were below expectations” resulting in a  “significant volume miss” compared to forecasts, with US momentum starting to slow.

Zip closed at $6.99, down 7.78%.

Headline growth looked good. Quarterly revenue of $129.9m was up 104% year-on-year (YoY) while quarterly transaction numbers 14.2 million up 230% in 12 months. Customer numbers grew by 84% to 7.3 million for the quarter. The quarterly transaction volume was $1.8 billion, up 116% YoY).

The brand launched in Canada and Mexico during Q4.

The quarter also included a $400 million raise in April, which the co-founders announced sell down of $19 million worth of stock, at above $9 a share, to deal with tax liabilities.

There was a notable increase in late payments over the three months, with arrears rising from 1.20% in the Q3 to 1.33% in Q4, while Net Bad Debts jumped from 1.78% in the March quarter to 2.24% in the June quarter.

Today Zip CEO Larry Diamond said called the Q4 update “another outstanding set of results”.

“In addition to the very strong financial performance, we continued executing on our global BNPL expansion strategy across both the developed and emerging markets,” he said.

“We are now truly a 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.”

It’s now a little over 12 months since Zip announced the acquisition of New York-based BNPL Quadpay for A$400 million.

Having touted the power of the brand to drive Zip’s growth in the US, it appears Quadpay’s brand recognition has not delivered as strongly as hoped and will be ditched, rebranded as Zip in Canada and the US from mid-August.

The company said it “will engage in a program of transitional communications to customers and merchants over the July-August period, to ensure widespread familiarity before launch”, with brand awareness campaigns being developed for key markets to accelerate consumer and merchant adoption.

Even today’s drop in the share price – to half of a $14+ high in February – was not enough to please some analysts, with Morningstar Quant still calling Zip overvalued at a fair value of $6.75. UBS has Zip as a sell with a $5.60 price target.