Australia's Zip soars on strong earnings, outlook, US listing plan

Australian BNPL firm Zip Co (ASX: ZIP) saw its shares jump over 25% to a three-year high following robust annual results, with cash EBTDA more than doubling to A$170.3 million, surpassing consensus, and net bad debts improving to 1.5% of total transaction volume. This strong performance was primarily driven by its U.S. business, which recorded 41.6% TTV growth, prompting Zip to explore a secondary Nasdaq listing to further leverage its U.S. operations, now contributing over 80% of divisional cash earnings. The significant share price appreciation reflects a strong turnaround for the company, which had faced headwinds from reduced consumer spending and rising interest rates.

Analysis

Australian BNPL firm Zip has demonstrated a significant operational turnaround, culminating in a share price surge of over 25% to a multi-year high. This was driven by annual cash EBTDA more than doubling to A$170.3 million, exceeding consensus estimates of A$160 million. The core driver of this outperformance is the U.S. business, which recorded a 41.6% growth in total transaction volume (TTV) and now accounts for over 80% of divisional cash earnings. Critically, this rapid expansion was coupled with improved risk management, as net bad debts decreased to 1.5% of TTV from 1.7% a year prior. Forward-looking guidance remains robust, with the company forecasting over 35% U.S. TTV growth for FY26, and Citi analysts projecting a consensus-beating EBTDA of A$230 million for the current fiscal year. The strategic plan to pursue a secondary listing on Nasdaq underscores a pivot to align the company's capital structure with its primary growth market, potentially unlocking access to a deeper pool of capital and enhancing investor visibility.

Key Decisions for Investors

• The strong earnings beat, robust U.S. growth, and improved credit quality signal a fundamental strengthening, suggesting investors should re-evaluate the company's valuation in light of the positive operational momentum.
• The proposed secondary listing on Nasdaq is a significant potential catalyst; progress on this initiative should be monitored closely as it could enhance liquidity and attract a new class of U.S. investors, potentially leading to a re-rating of the stock.
• Given the stock's more than six-fold increase since the end of 2023, investors should assess whether the current share price fully incorporates the positive outlook and consider the execution risk associated with sustaining high growth rates in the competitive U.S. BNPL market.