Zip: Momentum for business, not for share price

Zip (ASX: Z1P) is adamant that “momentum continues” in today’s December quarter update. The company's stock says otherwise, down -16% year-to-date.

That said, Zip delivered another set of record results.

Quarterly revenue came in at a record $167.4m, up 58% compared to a year ago. Customer numbers rose 57% to 9.9m and merchants increased 110% to 81,800.

Commenting on the performance, Managing Director and Global CEO Larry Diamond said: 

“The growing contribution from expansion markets is pleasing and should continue to build in the medium term in line with Zip’s global strategy. Despite external noise and challenges the business continues to deliver and we are very well placed to continue the growth and momentum in 2022.”

Are growth rates slowing?

Zip's quarterly revenue growth (percentage wise) grew at its slowest pace in more than two years.

• Q2 FY22: $167.4m (58% YoY)

• Q2 FY21: $102.0m (88%)

• Q2 FY20: $38.5m (101%)

Between Q2 FY20 and Q3 FY22, the company's revenues would grow, on average, 89.75%.

Expanding but not growing?

Zip's major regions still managed to outperform its expansion markets on a quarter-on-quarter basis.

Expansion markets are coming off a low base with operations in Canada, Mexico, parts of Europe and the Middle East.  

Transaction volume for expansion markets rose 33% QoQ to $121.5m. While the mature A&NZ market managed to deliver a 39% increase to $1.27bn.

Likewise, customers grew just 11% to 1m. While the US market experienced a 14% increase to 5.7m.

The major standout from Zip’s new markets was the surge in merchants.

Expansion markets have brought on board 22,700 merchants, representing more than a quarter of the company’s global merchant base. 

Regardless of performance, Zip’s presence in these new markets is strategic in nature and represents a potential growth lever to build upon. 

What brokers think 

Brokers are busy running the ruler on today’s new figures. 

A note from Morgans on 12 January rated the stock as an Add with a $7.54 price target (110% upside). 

Morgans said that the BNPL sector is experiencing weak sentiment and a strong first half performance is needed to prove the doubters wrong.