08-May-2020:  April Trading Update - Z1P Continues to Perform Strongly

Zip Co Limited (ASX: Z1P) (Zip) is pleased to provide a trading update for the month ending 30 April 2020. 

GROUP HIGHLIGHTS:

• Monthly revenue of $15.1m, up 81% YOY ($45.0m in Q3)
• Monthly transaction volume of $181.6m, up 86% YOY  
• Receivables of $1.2b, up 97% YOY
• Customer numbers increased to 2.0 million, up 66% YOY (70k added in month)
• Merchant numbers increased to 23.1k, up 50% YOY
• Net bad debts of 1.99%, significantly outperforming the market
• Monthly arrears remained flat at 1.57%  
• Customer repayment success rates higher or on par with pre COVID-19 rates
• Monthly repayments as a percentage of opening receivables increased to 15% (12% in March 2020)
• Hardship assistance for customers peaked at end of March (less than 0.08% of receivables) 

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.” 

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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.