Shares in buy now, pay later provider Zip Co experienced a significant drop on Thursday, falling 38 per cent just before market close. The decline followed the release of the company’s interim financial results, which fell short of market expectations. Zip Co provides point-of-sale credit and digital payment services. It operates primarily in Australia, New Zealand, and the United States.
During a conference call with CEO Cynthia Scott, analysts raised concerns about several key performance indicators. Lower-than-anticipated transaction volumes in the US market, a weaker-than-expected margin, and increasing bad debts associated with the rollout of longer-duration credit products in the US were specifically questioned. The analysts also expressed worries that higher bad debts and marketing expenditure, coupled with unfavourable foreign exchange movements, could potentially jeopardize the company’s full-year guidance.
Despite these concerns, CEO Cynthia Scott stated her confidence that transaction growth in the US would exceed 40 per cent for the full year. She also indicated that earnings for the second half of the year are expected to be broadly in line with those of the first half. According to Citi analyst Siraj Ahmed, while a negative reaction to the earnings miss and subsequent downgrade was expected, the 38 per cent share price decline appeared to be excessive.
