Zip’s Shares Surge on Upgraded FY25 Guidance Amid Strong US Performance
Zip Co Ltd (ASX: ZIP) saw its shares jump by 14% in early trading on Wednesday following its second guidance upgrade for FY25 in a mere two months, buoyed by substantial growth in the US market. The Buy Now, Pay Later (BNPL) firm now anticipates achieving a cash EBTDA of “at least $160 million,” an increase from the prior estimate of “at least $153 million,” reflecting a growth of over 4.5%.
Robust Momentum in the US
CEO Cynthia Scott highlighted the ongoing momentum, particularly in the US, where total transaction value (TTV) has exceeded 40% year-on-year growth. This surge indicates a continuation of strong performance, especially when compared with results from the March quarter.
Analysts noted several impressive quarterly metrics, including:
- Revenue growth: Up 26% year-on-year to $276 million
- Total transaction volumes: Up 36% to $3.3 billion
- Group cash EBTDA: Up 219% to $46 million
- Operating margin: 16.6%
UBS analysts pointed out a notable 9% year-on-year increase in US customer growth, up from 6% in the second quarter, along with enhancements in credit performance indicators.
Impact on Analyst Forecasts
The upgraded guidance is expected to lead analysts to adjust their earnings forecasts and target prices. UBS had previously projected FY25 cash EBTDA at $153 million, making a revision to “at least $160 million” likely. The investment bank anticipates cash EBTDA of $190 million and $258 million for FY26 and FY27 respectively, indicating year-on-year growth rates of 18.7% and 35.7%.
UBS expressed confidence in Zip’s growth trajectory but acknowledged investor concerns regarding the US market’s performance amid a shifting macroeconomic landscape. Potential recession risks could impact share prices, yet with a cash P/E ratio of 16x for FY26 and forecasts indicating a 30% compound annual growth rate (CAGR) through FY27, UBS believes that the significant macroeconomic risks are largely factored into current valuations.
Market Summary
Despite the promising outlook, Zip’s year-to-date trading has remained relatively flat, down approximately 10% as it recovers from a previous drawdown of about 57%. In comparison, US-listed competitors have performed better, with Affirm nearing breakeven and Sezzle’s stock price doubling.
The BNPL sector as a whole continues to show resilience, with both Zip and Sezzle announcing guidance upgrades in recent months. This highlights a positive trend in the broader market for alternative payment solutions.
Performance comparison: Sezzle (red), Affirm (blue), and Zip (purple) for the year-to-date (Source: TradingView)
In Conclusion
Zip’s latest performance indicators and guidance reveal a company thriving particularly in the US market. While external macroeconomic factors present risks, the projected growth rates showcase optimism for the firm and the BNPL sector overall.
