In its latest 3Q21 trading update, Zip Co (ASX:Z1P) demonstrated yet another strong quarter, with group revenue, merchants, and customers all experiencing a substantial 10%-20% increase on the previous quarter, showcasing consistent growth trends.
Quadpay's Standout Performance
Quadpay, Zip Co's US-based business, emerged as the star performer, exhibiting impressive sequential growth in revenue, transactions, and customers. With an annualized transaction volume reaching US$2.8bn, Quadpay's resilience stood out in the seasonally weakest quarter.
Credit Quality and Global Expansion
Maintaining sound credit quality, Zip Co's net bad debts reduced from 1.93% to 1.78%, underscoring a healthy global merchant pipeline. The company is making strategic strides in global expansion, with initial merchant signings in the UK, a soft launch in Canada, and strategic investments in BNPL players in South East Asia and Eastern Europe.
Performance Analysis
Dominance in the US Market
In what is typically its weakest quarter, Zip Co's Quadpay reported impressive sequential growth, with substantial increases in revenue (+16%), transactions (+7%), and customers (+19%). Quadpay's merchant base witnessed a remarkable 55% sequential growth.
Solid Results in ANZ
Zip Co's results in the Australia and New Zealand (ANZ) region, while meeting expectations, revealed a 61% year-on-year increase in transaction volume. However, the sequential decline of 8% aligned with seasonal trends.
Forecasts and Outlook
Minor adjustments to sales and profit margin forecasts led to a modest 2%-4% downgrade in Zip Co's FY21F/FY22F earnings per share (EPS).
Investment View
Despite the adjustment, Zip Co continues to execute well, delivering strong growth metrics across the board. The company's ambitions to become a global payments player position it for long-term upside, especially considering its significant discount to Afterpay Ltd (ASX:APT) in the EV-to-sales multiple.
This comprehensive performance overview reinforces Zip Co's resilience and strategic positioning in the dynamic buy now, pay later (BNPL) landscape.
