BNPL fintech Zip Co [ASX:ZIP] held its annual general meeting this week, stressing its changed focus on profitability over indiscriminate growth.
The BNPL firm said it was on track to deliver positive cash EBITDA in the first half of FY24.
ZIP shares were down 3% late on Thursday. The BNPL stock is down 85% year to date.
Source: Trading View
ZIP talks up change in fiscal attitude, eyes profitability
Zip’s management has been eager to let the market know that it’s shifted its focus from hypergrowth to profitability.
Disciplined capital allocation is now its guiding light.
In an address to shareholders during the 2022 Annual General Meeting, CEO and co-founder Larry Diamond said his firm has what it takes to become profitable.
With its recent $173 million raised in capital in early 2022, Diamond believes Zip is in a good position to chase cash EBITDA profitability by FY24:
‘We have simplified the business following adjustments to strategy, underlying monthly cash burn is improving and we are well funded, with approximately $141 million in available cash and liquidity. We are confident that we have the balance sheet to fund the Company through to cash EBTDA profitability. We expect to see the US exiting FY23 cash EBTDA positive and to neutralise the cash burn from our rest of world footprint during the second half of FY23. We are on track to deliver positive cash EBTDA as a group in the first half of financial year 2024.’
ZIP still backing BNPL revolution
Diamond also shared predictions made by US payment service provider Worldpay, who stated BNPL volumes are expected to ‘more than double in 2025 from 2021 levels’.
Zip’s CEO therefore believes ‘US penetration is on a similar trajectory to a more mature market’ much like its beginnings in Australia.
‘In Australia, around one-third of adults have a BNPL account and this number is growing’, Diamond stated.
‘Zip’s brand awareness amongst 18-45 is now close to 60%. In the last financial year, Zip’s Australian business made a record $28 million cash EBTDA, 2.5 times cash EBTDA from financial year 2021. This clearly demonstrates the operating leverage of the business model and the potential to deliver strong EBTDA growth at scale. Building scale in Zip’s core markets is critical to the future success of the business.’
Zip is intent on delivering results to the end of FY23, working on strategies ‘at pace’, and building on 2022 momentum.
‘Our outlook is unchanged, and we remain as committed as ever to achieve the best outcomes for our customers and merchants, as well as driving long-term shareholder value creation’, said Diamond.
‘Revenue as a percentage of TTV is targeted at 7.0% to 7.5%. Cost of sales as a percentage of TTV targeted at 4.0% to 4.5% and we expect to deliver a cash transaction margin of 2.5% to 3.0%.’
Three exciting fintech stocks
While the fintech sector has been beaten down in 2022, the recent bounce from the likes of Tyro Payments [ASX:TYR] shows there’s still interest in the sector.
Fintechs can still provide value opportunities — at the right price and with the right growth prospects.
There’s no doubt that in recent years many fintechs suffered from overconfidence in the ‘growth-at-all-costs’ business model that caught them off-guard when the markets turned.
You could argue Zip was a victim of this strategy and is now reprioritising profitability and positive cash flow.
Clearly, profitability is back as a priority for the sector.
With the right choices, some fintechs can grow into very sturdy, lucrative businesses.
Our market expert, Ryan Clarkson-Ledward, has done the necessary research required for discerning these.
He’s discovered three profitable fintech stocks flying under the radar. One of them, he says, is a start-up ‘wrestling with the big banks — and winning’.
Download Ryan’s free research report on three exciting fintechs here.
Regards,
Kiryll Prakapenka,
For Money Morning
