Zip Doubles Buy-Back as Rising Bad Debts Test Rapid US Expansion
Zip Co Limited has reported a near doubling in cash earnings for Q1 FY26, driven by robust transaction growth and improved operating leverage, particularly in the US market. The company also doubled its share buy-back program and raised its US transaction volume growth guidance.
- Record cash EBTDA of $62.8 million, up 98.1% year-on-year
- Total transaction volume (TTV) grew 38.7%, led by 47.2% growth in the US
- Operating margin improved to 19.5% from 13.1% in prior year
- Active customers increased to 6.4 million with merchant network expanding to 87,500
- On-market share buy-back program doubled to $100 million
Strong Earnings and Growth Momentum
Zip Co Limited (ASX, ZIP) has kicked off FY26 with a powerful first quarter performance, reporting record cash earnings before tax, depreciation, and amortisation (EBTDA) of $62.8 million, nearly doubling the prior year’s figure. This surge reflects a 38.7% increase in total transaction volume (TTV) to $3.9 billion, underscoring Zip’s expanding footprint in the digital payments and buy-now-pay-later space.
The company’s operating leverage has notably improved, with the operating margin rising to 19.5% from 13.1% a year earlier. This efficiency gain signals Zip’s ability to scale profitably as transaction volumes grow, a critical factor for sustaining long-term shareholder value.
US Market Drives Growth and Innovation
The US market remains the engine of Zip’s growth, with TTV and revenue increasing by 47.2% and 51.2% respectively in US dollars. Active US customers grew by 12.2% year-on-year, adding nearly half a million new users ahead of the crucial holiday season. Zip’s expansion of its Pay-in-Z platform, including the pilot of a new Pay-in-2 product allowing payments over two weeks, reflects its commitment to meeting evolving consumer needs.
Strategic partnerships and integrations, such as becoming available to all businesses on Stripe and embedding finance options through Google Pay and Chrome autofill, have enhanced customer experience and merchant adoption. Zip’s recent collaborations with sports franchises and media initiatives aim to boost brand awareness and app usage further.
ANZ Market Shows Steady Progress
In Australia and New Zealand, Zip’s TTV grew 11.1% year-on-year, driven by the Zip Plus product and increased customer engagement. Revenue and Australian receivables returned to growth, supported by improved portfolio yield and reduced arrears. The company also expanded its merchant base by nearly 12%, adding notable partners across various sectors.
Innovations such as integration with Xero Invoicing via Stripe are helping small businesses streamline payments and improve cash flow, reinforcing Zip’s role as a flexible financial services provider in the region.
Capital Management and Outlook
Reflecting confidence in its financial position and growth prospects, Zip has doubled its on-market share buy-back program to $100 million. The company ended the quarter with $451.5 million in cash and liquidity, providing ample runway for continued expansion.
Zip has upgraded its US TTV growth guidance for FY26 to above 40%, up from the previous target of 35%, while reaffirming other financial targets. The company is also progressing plans for a potential Nasdaq dual listing, which could enhance its access to capital and visibility in the US market, subject to regulatory approvals.
Bottom Line?
Zip’s robust start to FY26 and upgraded US growth outlook set the stage for a pivotal year ahead.
Questions in the middle?
- How will Zip’s potential Nasdaq dual listing impact its strategic growth and investor base?
- What risks could arise from the increasing net bad debts amid rapid US expansion?
- How will competitive pressures in the BNPL sector affect Zip’s margin and customer acquisition?
