Zip shuts down Singapore, dumps business products for profit

He said the valuation and focus of the business had changed since the deal was announced in February and “no longer stands for commercial reasons”.

“Not having the distractions of integrating other businesses allows us to focus on our core business,” said Gray.

Zip submitted its fourth-quarter results update early Thursday, pledging to reduce its offshore footprint, including exiting Singapore immediately and closing its lending business unit.

Revenue jumped 27 percent compared with a year ago to $160.1 million and margin on cash transactions increased to 2.4 percent from 2.3 percent in the third quarter.

“In line with its strategic objective to focus on the core markets of Australia and New Zealand and the US, this quarter Zip continued to make changes and decisions to precisely measure its global footprint and reduce the group’s cash outlays,” chief executive and founder Larry Diamond said in a statement.

The news sent Zip shares up another 3 percent to 68¢ early Thursday, for a total gain of nearly 27 percent over five days, as investors cheered new promises of cost discipline.

“Interesting to watch Zip and [software company] Megaport and others get messages about burning cash. The market has strained their hand and will likely value the commitment to this,” said Chris Tynan, investment analyst at DNR Capital.

Mr Tynan said major cuts to Zip’s operating costs and closing non-core businesses that “obviously had negative equity value” could see the company follow Megaport’s lead. Megaport has cut “enough to have cash flow nearly even”; its shares are up nearly 24 percent over five days.

Zip Co co-founder and chief executive Larry Diamond: “Zip continues to make changes and decisions to adjust the size of its global footprint and reduce the group’s cash outlay.” Dominic Lorrimer

As concerns rose over whether the buy now, pay later sector could achieve profitability in a deteriorating economic environment, Diamond stated that the group was “just getting started”.

“Our role as a financial services technology provider is becoming increasingly important in today’s climate as we support our customers and merchant partners through this inflationary period,” he said.

“The resilience of Zip and its business model has put us in a great position to grow through the next stages of the journey and even though we are nine years old, it feels like we are just getting started.”

While the market supports the new discipline, Gray said growth is still on Zip’s agenda but will take a more scalable approach to scale.

“Obviously part of the Sezzle deal thesis is building scale faster, but as the world has changed since the transaction was announced, there are other levers we can use to bring the business back to profitability first,” he said.

“We remain focused on sustainable growth. Growth is a very important part of our future, especially in a market like the US which is less mature than Australia.”

Mr Gray said Zip would “reorganize the business to deliver more profitable returns” by exiting things like six-month business loans.

Business unit closed

As part of its focus on core assets, Zip said it would close its Zip Business unit and exit its Trade and Trade Plus product suite, and withdraw from Singapore at the end of September to reduce cash outlays.

The company said it will provide an update on its UK plans on full-year results next month, when it will also confirm whether it needs to post impairment charges against its Spotti, Twisto and Quadpay assets.

Mr Gray will not be interested in reports that Zip is close to selling its UK assets.

“No further comment specifically [on the UK] besides we wrote down goodwill in our half year results,” he said.

The company said loss rates in Australia had peaked and measures taken to contain bad debts had resulted in a reduction in arrears rates, with losses likely to decline over the 2023 financial year. It said second-half losses were expected to be similar to those in the first half.

Zip said $278.6 million in cash and liquidity “is expected to be sufficient reserves to support the Company through EBTDA cash [earnings before tax, depreciation and amortisation] profitability”.

It confirms that it remains well placed for debt financing, with $396.9 million of capacity in Australia and $183.1 million in the United States available to fund transaction and receivables growth.

Royal Bank of Canada analyst Wei-Weng Chen said bad debts rose 40 basis points in Australia and New Zealand compared to the previous quarter, but efforts to tighten credit controls in the US appeared to be working, with the trend falling from 2.7 percent to 2.2 percent. . percent, “towards the 2 percent targeted zip”.

“We will continue to observe how credit controls will impact the ability of the business to grow its total transaction volume,” Chen said.

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