BNPL stock Zip Co [ASX:Z1P] saw FY22 net loss balloon to more than $1 billion as the fintech talks up cash burn reduction and profitability pathway.
Zip declared ‘strong operating performance’ with claims to improve US credit losses and a focus on reducing the company’s cash burn.
Z1P shares were up 2% in late afternoon trade.
Despite the BNPL stock gaining more than 200% in July, Z1P shares are still down 85% over the past 12 months, paralleling the wider BNPL sector sell-off.
Source: www.tradingview.com
Zip revenue eclipsed by expenses
The BNPL stock reported its FY22 net loss ballooning to more than $1 billion.
Zip has now accumulated more than $1.8 billion in losses.
The key metrics:
- Group revenue rose 57% to a record $620 million
- Transaction volume rose 51% to a record $8.7 billion
- Transaction numbers rose 80% to a record 74.3 million
- Customer numbers rose 56% to 11.4 million
- Merchant numbers rose 77% to 90,700
- On average Zip recycles its receivables book every 3.8 months
While Zip saw its revenue margin rise from 6.8% in FY21 to 7.1% in FY22, it was still down on FY20, which came in at 7.6%.
The cash transaction margin didn’t see an improvement in FY22, steadily falling from 3.8% in FY20 and 3.1% in FY21 to 2.3% in FY22.
The key financials:
- Cash gross profit up 12% to $203.7 million
- Cash EBITDA loss of $207 million
- Net loss up 45% to $1.02 billion
- Available cash and liquidity of $279 million as of 30 June 2022
- Net cash outflows from operating activities fell 15% to $752.4 million
Zip’s total equity has now shrunk from $1.1 billion to $437.7 million:
Source: Z1P
Zip’s cash burn focus
Zip said it has started streamlining credit losses in the US and Australia, with tighter rules and cut-off scores optimising repayment patterns.
Zip has also exited Singapore and UK markets to reduce cash burn and is reviewing its Rest of World initiatives.
Zip reported US loss rates have begun approaching targeted levels of 2.1%, with Australian recoveries lifting 71% in Q4.
Is Z1P accelerating to profitability or not?
CEO Larry Diamond offered his thoughts on Zip’s FY22 performance, choosing to emphasise the fintech’s cash burn initiatives:
‘As we look back on the past 12 months, it’s clear the world is vastly different than when we started the year.
‘In our Half Year results we acknowledged changes in the external environment were quicker and more severe than first anticipated. Against this backdrop, we changed strategy and shifted to delivering sustainable growth, right-sizing our global cost base and accelerating the path to profitability.
‘To that end, I want to share that we have already delivered on a number of initiatives to reduce cash burn, manage credit losses and improve unit economics. Our ability to pivot and adapt to the new world, showcases the resilience and viability of our business model as we focus on the opportunity ahead in FY23.
‘While FY22 has been a year of change and consolidation, our mission and values remain constant. In times of heightened inflation and cost of living pressures, BNPL has become even more of an important budgeting tool for everyday consumers. That is why we have never felt more passionate about giving people the knowledge, access and the ability to control their financial lives so they can live every day with confidence.’
In Z1P’s FY22 investor presentation, the fintech spoke about its outlook for FY23.
Zip thinks it can exit FY23 cash EBITDA positive in the US and be group cash EBITDA profitable during H1 FY24.
That would be quite the turnaround after posting $1 billion in net losses this year.
Time will tell.
Battery tech on the rise
BNPL companies have had it rough this year, and with inflation reaching higher levels, it doesn’t look like the macro environment will improve soon.
But let’s talk about a sector that is due for big change.
EVs will be flooding the market in the not-too-distant future.
They will require huge quantities of lithium, copper, graphite, and nickel to power their batteries.
Our small-cap expert, Callum Newman, thinks he’s found three battery tech stocks flying under the market’s radar.
To find out more, read Cal’s free research report here.
Regards,
Kiryll Prakapenka
