Zip share price: where next following record quarterly results?

Zip share price: two bullish trading days

The Zip (ASX: Z1P) share price has risen strongly over the last two trading sessions, following the release of the company’s FY20 second quarter financial results.

Interestingly, though Zip’s stock bottomed-out at $3.160 per share last week – amid growing geopolitical tensions – the stock has since rebounded strongly, and currently trades at the $3.68 mark, some 16% ahead of last week's low.

Centrally, a number of Zip’s key operational metrics exhibited good growth during the second quarter, with the company yesterday reporting:

‘Record quarterly revenue of $38.5m, up 24% on Q1 FY20 (up 101% YOY),’ and ‘record quarterly transaction volume of $562.6m, up 40% on Q1 FY20 (up 85% YOY).’

As a result of the above stated Q2 transaction volumes, Zip also noted that on an annualised basis its transaction volumes currently sit at an impressive $2.3bn.

User and merchant growth also continued to build during the quarter, with active merchants increasing to 20,875 and active customers hitting an impressive 1.8 million.

Moreover and speaking to Zip’s quality as a credit provider – the company also reported that gross bad debts stood at 1.91% (as of December 2019) – down from 1.95% as of September 2019. Net bad debts, across those same periods, remained unchanged at 1.68%.

Lastly, Zip noted that 'well known, popular retailers [were] continuing to join the platform, including Amazon Australia.’ When this news was first revealed, the Zip share price skyrocketed some 22%.

Though Zip continues to exhibit above-normal growth characteristics, investors may be beginning to question if the fast-growing company’s valuation is becoming stretched – with a market capitalisation of $1.42bn – on Q2 revenues of $38.5m.

For now at least, investors seem mostly unperturbed by such concerns.

Progress on 2020 targets

Looking at the company’s broader ambitions, Zip (ASX: Z1P) appears to be making steady progress on meeting its previously set end of 2020 financial year targets of hitting transaction volumes of $2.2bn and reaching 2.5 million users, globally.

Across both those metrics, as we pointed out at the start, Zip recorded annualised transaction volumes of $2.3bn (on the basis of Q2 transaction volumes) and currently boasts a user-base of 1.8 million.

Where next?

Zip yesterday noted that it would no longer release quarterly financial reports – instead it would issue business trading updates to the market – at the end of each quarter.

The company is set to release its half-year results (ending December 2019), near the end of February.

UBS took yesterday's Q2 report as a chance to reiterate their bullish view on the stock, reiterating their BUY rating and 12-month price target of $4.80 on Zip. For buy now pay later exposure, UBS currently prefers Zip (ASX: Z1P) over Afterpay (ASX: APT).

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