Zip counters $1.1 billion loss with claims of reduced cash burn and tighter BNPL lending rules

Buy now, pay later giant Zip has posted a $1.1 billion loss for the 2021-2022 financial year, but claims the closure of its UK and Singapore offices, the “retirement” of Pocketbook, and a crackdown on bad debts will help turn the ship around.

In its FY22 results update, released Thursday, Zip showed its loss before income tax ballooned to $1.1 billion, compared to the $734 million loss it tallied the year prior.

The largest single loss came from a $821 million write-down of the company’s goodwill and intangibles, but the firm also tallied a significant uptick to the bad debts on its books.

Over the financial year, Zip copped a $276 million loss linked to bad debts and expected credit loss, more than double the tally recorded in the prior financial year.

All told, bad debts written off now account of 2.6% of Zip’s underlying financing volumes, compared to 1.4% in 2020-2021, and sit well above the company’s 2% target.

It was not all bad news for the company, as Zip continues to acquire revenue and new users with gusto.

Revenue grew to $620 million, up 75% year-on-year, and customers rose to 11.4 million, up 56% over from the prior period.

Demonstrating the grip buy now, pay later services have over their most ardent users, Zip said the top 20% of its Australian users can be expected to transact a staggering 70 times over the course of the year.

The merchant acquisition plan continues apace, Zip added, with nearly 91,000 merchants now signed up worldwide, up 77% year-on-year.

Co-founder and CEO Larry Diamond also said Zip has undertaken a raft of initiatives designed to slow down the firm’s cash burn.

Beyond closing Zip’s Singapore and UK offices to focus on its APAC and US operations, the firm also pulled the plug on Pocketbook, the personal finance app acquired by Zip in 2016.

Zip has also zeroed in on bad debts, claiming it has “tightened its decisioning rules and cut off scores, enhanced credit limit management and optimised its approach to repayments and collections”.

In Australia, that resulted in a 71% uptick in “recoveries of written-off accounts”. In other words, Zip says it’s getting better at making its delinquent users pay up.

And although interest rates are rising, Zip says the rapid pace of its financing shields it from the worst impacts of lengthy repayment times.

Zip’s own interest expenditure actually fell 0.2% over the reporting period, owing to the reduced costs of operating its pay-in-four functions compared to its longer-term financing options like the now-defunct SME credit products Trade and Trade Plus.

The consumer side poses more opportunity for Zip in the year ahead, Diamond said.

“In times of heightened inflation and cost of living pressures, BNPL has become even more of an important budgeting tool for everyday consumers,” he said.

Not mentioned in the report: the fact heightened regulation over the sector may be just around the corner, and the likelihood platforms like Apple Pay could rock the sector.

But for now, Zip’s message is clear: BNPL is an expensive business, yet it’s still growing in popularity among consumers.