When valuing Z1P, The two main metrics that stand out and investors have to pay particular attention to is transaction volume (TV) and current active customers (AC).
Z1P forecast for FY20E is $2.2b TV, and 2.5m AC. Zip's 2Q trading update showed active customers of 1,754k, ahead of UBS (1,688k) prediction. Revenue yield did initially fall against the previous quarter from 16.8% to 16.2% respectively. This was due to the Partpay acquisition and it initial timing and Christmas period. While Christmas is a high volume transaction period, the revenue and interest generation from these periods had not been realized.
UBS believes Z1P can easily hit their target of $2.2b in TV however are bearish on the customer base, stating that they believe 2.1m customer is a more realistic target. As per the most recent quarterly, Z1P saw average customer base at 1.8m and merchants grew to close to 21,000. Z1P's deal with amazon is surely to effect the price materially and this is can be seen by Z1P uping their TV to $2.3b annualized.
But if we focus on the solely on the customer base, and use a 1.8m round figure, if look at the previous corresponding quarters and estimate that forward. The previous corresponding quarters, Q3 and Q4 saw Z1P on board customers to their platform of 143k and 170k (313k total). This brings an assumed total of customers by the EOFY to 2.113m. So its easy to see where UBS got their figure. However this doesn't include the current UK segments. The roll out of the UK segment has seen no information given to investors, however if Z1P wants to achieve its 2.5m AC base, the UK segments needs to contribute substantially, also these numbers assume no YoY growth. Assume these targets are hit, TV will increase substantially and revenue by extension
Generally per $1b in TV, $80m in revenue is generated. Revenues expected for FY20 is 160m and by the looks of the basic numbers, this revenue figure look achievable (take with a grain of salt). While it is very hard to value unprofitable companies. Taking the forecast revenue and multiplying by the P/S ratio (160 x 16.3) and the dividing by shares on issues 390m. We get a price target of $6.68, shave 25% for safety and poterntial cap raises, the final assumed target is $5.01. This is however using fairly conservative estimates. If Z1P achieves their target pf 2.5m customers, i see a $5.25 - $5.75 price target by mid next year, which is not unreasonable.
One more thing to mention, if Z1P executes on all front, profitability is forecast sometime FY21, most likely by the half year results. This could also see price action strengthen.
all information taken from:https://www.asx.com.au/asx/share-price-research/company/Z1Phttp://zipmoneylimited.com.au/files/research/2020-01-13--UBS_-_2Q20_trading_update.pdfhttps://app.stockopedia.com/share-prices/zip-co-ASX:Z1P
Let's try that with the right file. Financial Review Article June 8,2020
Zip Co Limited (ASX: Z1P) (Zip) is pleased to provide a trading update for the month ending 30 April 2020.
Managing Director and CEO Larry Diamond said: “April was another very strong month for Zip, and in particular when considering the shutdown of a large portion of the economy. Our product differentiation and penetration into purchases for online, the home, and everyday spend categories, delivered robust transaction volume. Our revenue model has continued to deliver a strong result in the face of a challenging economic environment for retail more generally. The start of May looks to be considerably stronger again relative to April, and we look forward to supporting our retail partners as social restrictions gradually ease and brick and mortar stores begin to re-open.”
Executive Director and COO Peter Gray said: “The investments we have made in our credit and decision technology platform over the last 7 years, our flexible wallet product, and the unique levels of engagement we have with our customers are paying off. We have seen Zip continue to deliver market leading receivables performance. The increased repayment metrics were extremely pleasing, and we are well placed to continue to successfully manage our portfolio in this challenging time.”
--- click on link above for more ---
Also, one month ago: 08-Apr-2020: March 2020 Quarterly Update
I can't help but feel that Z1P is like the old Betamax video cassette system, which was superior in every way to the VHS system yet got killed by VHS anyway - because VHS was more popular and it had a positive feedback loop. The more stuff that was available on VHS, the more people used VHS, the more stuff became available for VHS, and so it went - until Betamax just died. Of course so did VHS eventually, but not before becoming the dominant format globally. VHS was itself eventually replaced by DVDs and Blu Ray. Afterpay is the VHS of Australia and zipPay seems to be the Betamax of Australia. IMHO. Z1P appears to have better client/customer screening processes, so will have less bad and doubtful debts, and there are other advantage to their business model as well, but APT has the first mover advantage, and the momentum, and they're going to be the winners, with the vast majority of market share - particularly here in Australia (they've already achieved that, but I think their market share will just increase further from here) unless they implode under a mountain of debt. I don't have good visibility of the competitive landscape for them in other countries. I know that if people view their business model as innovative and advantageous, others will try to copy them, with a few tweaks, to get in on that market and grab a slice of that pie. I don't invest in either company. I'm very wary of 2nd tier and lower tier lenders. As many have said, APT and Z1P have NOT had their business models properly stress-tested through the full economic cycle. That is probably starting to occur now, and it might expose some cracks. Lower tier lenders are fraught with risks in my opinion and there are also some questionable practises employed by some of them. I have avoided TGA (Thorn Group) and CCV (Cash Converters) over the years for similar reasons, and look what has happened to them! While I see the stake that Tencent has just bought in APT as a big plus, I'm still not tempted to jump onboard that runaway train.
Thinking of buying considering the retail market.