Zip share price: Everything you need to know about the October update

We look at the highlights from the company’s October trading update.

The Zip (Z1P) share price spiked and then levelled off as Monday’s session wore on, after the company released its October trading update to the market.

This comes even after the company delivered another set of record results, notching up impressive operational performances across all of its key regions, including the United States, Australia, and New Zealand.

Overall, for the first four months of fiscal 2021, the company reported total revenues of $96.7 million, representing an impressive year-over-year increase of 91%. For reference, in October alone, Zip's revenue came in at $27.6 million.

These top-line results were underpinned by strong merchant growth, with the company in October recording transaction volumes of $401.1 million (+104% year-over-year), implying annualised transaction volumes of $4.8 billion.

Zip's US operations saw an even more pronounced acceleration in October, with QuadPay reporting total transaction volumes of $160.6 million (+200% year-over-year) and $11.4 million in revenues.

Elsewhere, Zip said its total customers currently sit at 4.8 million (2.5 million of which are US-based) while total merchants are above 36.5 thousand.

Looking at the company's credit performance, in Australia, Zip's monthly arrears fell to 0.89% in October, down from 1.33% in June, a result which the company described as ‘outstanding’ given the current economic situation.

Looking ahead, Zip’s MD and CEO, Larry Diamond said:

'We would like to wish all our merchant partners a strong trading period over the Black Friday – Cyber Monday weekend and into Christmas and Boxing Day. It has been a very different year for many businesses, large and small, online and offline, and we hope this quarter brings positivity and good cheer throughout.'

With the above in mind, it was also noted that 'The momentum across the Company has continued in November with all regions set to deliver step change month-on-month growth.'

How the market reacted

Despite another record period, the market responded with little enthusiasm, with the stock trading flatly and finishing out the session at $6.20.

RBC analysts, which have an Outperform rating and $10.00 price target on Zip, attributed the market response to the company’s local performance, saying:

‘The ANZ business is likely weighing slightly on the share price reaction in our view.’

RBC went onto note that these muted revenue growth rates imply that the ‘revenue margin has again slipped through October (no receivables figure provided to compare yield), which sees a continuation of this trend. That said, 2Q is usually a seasonally weaker quarter for revenue yield.

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