Zip shares hit three-year high on earnings beat as BNPL firm unveils US listing plan

Zip Co. shares surged over 25% to a three-year high after reporting robust annual earnings, with cash earnings before tax, depreciation, and amortization more than doubling to A$170.3 million, exceeding analyst forecasts. This strong performance was primarily fueled by its U.S. operations, which saw transaction volume climb 41.6% and improved asset quality, underpinned by a strategic focus on non-discretionary spending. The company also announced plans for a secondary Nasdaq listing to broaden its investor base and capitalize on the U.S. market, now representing over 80% of its divisional cash earnings, signaling continued growth momentum and a significant turnaround for the BNPL firm.

Analysis

Zip Co. has demonstrated a significant operational turnaround, culminating in a stock price surge of over 25% to a three-year high. This rally is underpinned by a robust earnings report for the year ending June 30, where cash earnings (EBITDA) more than doubled to A$170.3 million, decisively beating analyst consensus of A$160 million. The primary engine of this growth is the company's US business, which now accounts for over 80% of divisional cash earnings and saw its total transaction volume (TTV) climb 41.6%. This performance is further supported by improved asset quality, evidenced by net bad debts declining to 1.5% of TTV. A key strategic element is the company's successful positioning as a tool for managing non-discretionary spending, which provides a defensive characteristic in an uncertain economic climate. Looking forward, the company's guidance for US TTV growth exceeding 35% in fiscal 2026 and a planned secondary listing on the Nasdaq signal strong confidence. This dual-listing strategy is designed to attract greater US institutional investment, building on the existing 16% stake held by major funds like BlackRock and State Street, and could serve as a major catalyst for a valuation re-rating.

Key Decisions for Investors

• Investors should evaluate the planned Nasdaq dual-listing as a primary near-term catalyst, which could unlock significant value by increasing accessibility for US institutional capital focused on the company's core growth market.
• It is crucial to monitor the execution of the US transaction volume growth, which is guided to exceed 35% in FY26, and the continued improvement in net bad debt metrics, as these are the central pillars of the current investment thesis.
• Consider the company's strategic focus on non-discretionary spending categories, as this pivot may provide greater earnings resilience and a defensive advantage compared to BNPL peers concentrated in discretionary retail.
• While the stock's recent six-fold increase since late 2023 is substantial, its market capitalization remains well below its 2021 peak, suggesting further upside potential if management successfully executes on its US expansion and margin improvement targets.