The Zip Co Ltd (ASX: Z1P) share price has surged as much as 15% this morning after the buy now, pay later (BNPL) provider reported a strong month in April despite the shutdown of a large portion of the economy. Zip Co reported transaction volumes of $181.6 million in April, an 86% increase year-on-year.
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What does Zip Co offer?
Zip Co offers point-of-sale credit and digital payment services to consumers and merchants. The company provides a credit line to customers and conducts credit, bank statement, and identity checks. Competing with Afterpay Ltd (ASX: APT), Zip Co focuses on acquiring prime and near-prime customers with a revolving line of credit to finance their retail purchases.
Merchants offering Zip include Amazon, Chemist Warehouse, Optus, Bunnings, and Big W. The BNPL sector is booming in Australia with an estimated $7 billion spent by Australians via BNPL services last year. Zip Co acquired New Zealand-headquartered PartPay last year. The acquisition offered exposure to 4 key geographies – New Zealand, South Africa, the US, and the UK.
Revenues up 81%
Zip Co reported an 81% year-on-year increase in monthly revenue in April, which grew to $15.1 million. Managing Director Larry Diamond reports that the start of May looks to be considerably stronger again relative to April. Commenting on April figures, Diamond said, "our product differentiation and penetration into purchases for online, the home, and everyday spend categories, delivered robust transaction volume."
Zip believes its success is due to the defensive nature of its model, which plays in many categories that customers are spending in. Its exposure to online has helped the business, as has the platform's ability to allow users to pay bills and make purchases across groceries, retail and home.
Customer numbers reach 2 million
Zip added some 70,000 customers during April, taking total customer numbers to 2 million, a 66% increase year-on-year. Merchant numbers increased to 23,100, a 50% increase from April FY19. Customers repayment success rates are higher or on par with pre-COVID-19 levels. Arrears remain low at 1.57% while bad debts are 1.99%.
The investments made in Zip's credit and decision technology platform appear to be paying off. Says Diamond, "we have seen Zip continue to deliver market leading receivables performance . . . and we are well placed to continue to successfully manage our portfolio in this challenging time."
Outlook
Zip Co intends to launch in the UK by the end of the year and is developing its stake in US and South African BNPL platforms. The company's exponential customer and merchant growth indicate a large and diverse market. The question is whether Zip can convert these numbers into profitability.
