Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue rose 28.2% to $868 million, with revenue margins expanding by 96 basis points to 8.7% of TTV.
- Cash net transaction margin expanded by 96 basis points to 3.8%, and net bad debt fell to 1.7% of TTV.
- The Americas business delivered a record cash EBTDA of $77.2 million, up 420% from a loss in FY23.
- Zip achieved normalized group cash EBTDA of $69 million, a $117 million turnaround from FY23.
- The company has no corporate debt and sufficient equity and free cash flow generation to support growth opportunities.
Negative Points
- Active customer numbers in the US were slightly subdued during the year.
- The ANZ business faced a more challenging operating environment despite improvements.
- There are specific licensing requirements in some US states, causing temporary service disruptions.
- The company expects to incur additional costs for growth initiatives, potentially impacting short-term profitability.
- The revenue margin is expected to be diluted due to the significant growth in the US market, which has a lower margin.
Q & A Highlights
Q: Can you provide comments on the current trading environment in the US and any reasons to think the market has slowed down or accelerated?
A: We are seeing continued strong momentum in the US, with loss rates around 1.3% of TTV. The external operating environment remains constructive with positive consumer sentiment and retail sales. Additionally, commentary on potential interest rate reductions is a tailwind for both Zip customers and our financial performance. (Cynthia Scott, CEO)
Q: What impact could recent large partnerships, like the expansion with Google Pay and Stripe, have on active customers and average transaction value (ATV)?
A: Customer numbers have been subdued, but existing customers are more engaged and increasing their average spend. For FY25, we will focus on bringing net new customers directly to Zip and prioritizing merchant integrations for embedded finance. The Stripe partnership, with its 4 million merchants, represents a significant opportunity. (Cynthia Scott, CEO)
Q: What are the expectations for TTV growth in the US for FY25?
A: We expect to grow above the market rate of 30% to 32% for comparable installment products. Our US business has been growing stronger than this rate, and we anticipate this trend to continue. (Cynthia Scott, CEO)
Q: How aggressive are you willing to be in using net bad debt as a lever to drive new customer acquisitions in the US?
A: We have seen strong repeat business with existing customers, and our credit decisioning platform enables good outcomes. As we scale and bring on new customers, we have the flexibility to maximize growth while maintaining disciplined credit settings. (Gordon Bell, CFO)
Q: Are we seeing TTV growth starting to turn positive in Australia in early FY25?
A: Initiatives undertaken in Q4 have repositioned the ANZ business for growth, with an increase in monthly transacting users. New customer growth will come from new merchants and the expansion of Zip Plus, which will be marketed more aggressively from Q2. (Cynthia Scott, CEO)
Q: What are the key levers to achieve the cash EBTDA target of 1% to 2% of TTV?
A: The primary lever is growth. While we will continue to generate upside through unit economics, the material improvement this year means there is a limit to how far that can go. (Gordon Bell, CFO)
Q: Can you provide more details on the Stripe partnership and its expected impact?
A: The Stripe partnership is live in the US, and we have a go-to-market campaign planned for the next quarter. This partnership, along with others like Adyen, will improve our pipeline and bring more merchants onto the platform. (Larry Diamond, CEO - US)
Q: What are the expectations for cost growth in FY25, particularly for salaries, marketing, and IT costs?
A: We will take a disciplined approach, growing costs in line with business needs. A reasonable expectation would be a growth range of 6% to 10%, but this will be assessed throughout the year. (Gordon Bell, CFO)
Q: Can you comment on the US TTV growth in the first seven to eight weeks of FY25?
A: The US business continues to exhibit strong momentum, giving us confidence that it is growing stronger than the market. (Cynthia Scott, CEO)
Q: What is the impact of the Fed's proposal to lower the debit interchange fee on Zip's transactions?
A: The impact is not expected to be material. While bank fees have increased with volumes, we have generated some leverage and efficiency, and we do not anticipate significant changes going forward. (Gordon Bell, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
