Zip rallies on second FY25 guidance upgrade. Here's what you need to know
Zip upgraded its FY25 cash EBTDA for a second time in two months, driving the stock 14% higher on Wednesday.
Mentioned
KEY POINTS
- Zip upgraded FY25 cash EBTDA guidance to at least $160 million, up from $153 million in April
- Shares jumped 14% on the news, marking the second guidance upgrade in two months
- US business remains the key driver, with TTV growing over 40% year-on-year and accelerating from March quarter levels
- Despite strong operational momentum, Zip shares remain down around 10% year-to-date, underperforming peers like Sezzle and Affirm
Zip (ASX: ZIP) shares surged 14% in early trade on Wednesday after the company upgraded its FY25 guidance for the second time in two months, driven by continued strong momentum in the US market.
The Buy Now, Pay Later firm now expects to deliver cash EBTDA of "at least $160 million" compared to April guidance of "at least $153 million", representing an increase of at least 4.5%.
"Zip's momentum has continued throughout May, particularly in the US where TTV has continued to grow above 40% year on year, reflecting the resilience of our business model and disciplined execution of our strategy," said CEO Cynthia Scott.
US Business Firing on All Cylinders
The US market has been the standout performer, with today's commentary noting TTV growth above 40% year-on-year, suggesting an acceleration from the March quarter's strong results.
Previous quarterly metrics that impressed analysts included:
Revenue up 26% year-on-year to $276m
Total transaction volumes up 36% to $3.3bn
Group cash EBTDA up 219% to $46m
Operating margin of 16.6%
UBS analysts highlighted the acceleration in US customer growth to 9% year-on-year (from 6% in the second quarter), along with improving credit performance indicators, as particularly encouraging.
Analyst Implications
The guidance upgrade will likely prompt analysts to revise their earnings forecasts and target prices higher. UBS (17-Apr) had forecast FY25 cash EBTDA of $153 million, which will likely require an upward revision following today's upgrade to 'at least $160 million.
The investment bank projects FY26 and FY27 cash EBTDA of $190 million and $258 million respectively, implying year-on-year growth rates of 18.7% and 35.7%.
"Fundamentally, the growth story remains intact, in our view, with the key uncertainty for investors remaining the performance of the US business in a more volatile macro environment going forward," UBS noted in April.
"While a US recession scenario naturally implies further share price downside risk, at 16x Cash P/E (FY26e) for a business forecast to grow earnings at a 30% CAGR (FY25-27e), we think significant macro risk is priced in at these levels."
The bottom line
Despite the positive momentum, Zip has traded relatively flat this year, still down around 10% year-to-date after recovering from a drawdown of around 57%.
US-listed peers have outperformed, with Affirm approaching breakeven for the year, while Sezzle has more than doubled.
Sezzle (red), Affirm (blue) and Zip (purple) year-to-date performance | Source: TradingView
However, the broader BNPL sector remains resilient, with both Zip and Sezzle upgrading guidance in recent months.
