On Wednesday (October 30), Zip (ASX:Z1P) announced results for its first 2020 fiscal quarter, saying its customer base now exceeds 1.4 million people, a rise of over 10 percent for the period.

The financial technology firm also announced record revenues of AU$31 million, along with record transaction volumes, which are now annualising at AU$1.6 billion each year.

Zip notes in its release that net bad debt write-offs came in at 1.68 percent for the quarter, close to 1 percent lower than in the first fiscal quarter of 2019. By comparison, according to PwC, bad debt expenses rose 14 percent year-over-year for Australia’s top four banks.


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Underscoring the quarter were two major acquisitions made by Zip as the company expands its portfolio. The first, which was announced in August, was with PartPay, a buy-now, pay-later tech company. PartPay is slated to provide a new channel into the UK, US and South African markets.

The second acquisition by Zip came in September when it bought digital lending company Spotcap.

Core to Zip’s business model is providing lending vehicles to a cross section of clients, with customers categorized as prime, near prime and emerging prime.

Despite increasing transaction volumes and a growing customer base, the company reported a net loss of AU$4.38 million for the quarter. In addition to this, Zip’s debt burden has risen precipitously to AU$587.45 million, which is more than double the amount in 2019’s second fiscal quarter.

Zip’s price-to-book value, a metric that measures market value compared to the value of a company’s balance sheet, stands at 17.39. Price-to-book value is one way to determine if a company is overvalued.

While it varies across industries, some investors will often look for metrics that stand at three and under.

Although the company is showing new signs of expansion, it appears that investors are feeling cautious as its margins have contracted and debt levels have climbed.

Still, consumer habits are shifting more towards alternative lending and digital wallets. According to Statista, the transaction value for alternative lending in Australia is projected to reach US$632.4 million by 2023, growing at a 4.1 percent compound annual rate of growth.

Shares of Zip fell 19.31 percent to AU$3.76 following Wednesday’s announcement. Year-to-date, its shares have risen 240 percent.

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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.


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