“Our broad vertical penetration in the industry from our product build is really well positioned to become even more meaningful again to consumers as they manage their budget in an environment of rising costs.”
Zip’s pre-tax cash profit was $203.7 million. Its net after-tax loss of $1.105 billion included an impairment of $821 million, related to goodwill and intangibles and a charge of $590.1 million for “adjusted discount rates and reduced expected growth rates and cash flows.” of cash in the US and New Zealand”.
Zip said closing the UK and Singapore operations would reduce the company’s cash burn, with RBC analyst Wei-Weng Chen saying it would save $50 million a year in costs.
Chen said other options to reduce its footprint in the rest of the world to save money and Zip’s statement that it could achieve profitability in the first half of 2024 performance, as well as strong business performance in Australia, were all positive.
Gray said the impact of higher interest rates on its financing costs could be offset by passing the costs on to customers and merchants.
“We are really well positioned to maintain margins. Indeed, increases in interest rates can contract margins, [but] we are very well positioned with levers at our disposal to maintain margins,” said Mr. Gray.
“We were able to reprice both customers and merchants, and as we demonstrated, we can refinance installations at lower cost rates. I think we have a great opportunity to continue to reduce costs as we scale.”
While FitchRatings said lower-margin retailers might find buy now, pay later less attractive in an environment of rising interest rates, Gray said the US recession is deepening as they look to boost sales.
“Arguably we will be more meaningful to traders during this period and when we talk about prices [increases ] 25 or 50 basis points on that kind of amount, it’s not like the costs have doubled,” Gray said.
“During a more challenging economic environment, where they are seeing some headwinds regarding consumer spending, we become more meaningful to them.
“There are no COVID-driven stimuli or tailwinds, so they are looking to maintain their top-line growth, so partnerships with companies like ours that can refer traffic that drive incremental sales growth are very significant.” .
But Zip said it would also harden bad loans to lower the costs of its sales.
“In response to credit losses that exceeded Zip’s target range, the company took a series of actions that are enhancing losses in Australia and the US,” the company said.
“Zip has strengthened its decision rules and cutoff scores, improved credit limit management, and streamlined its approach to refunds and collections.”
In July, Zip abandoned its Singapore and Australian business lending unit and abandoned a planned merger with Sezzle, focused on the US. It reportedly aimed to sell its UK business, but instead chose to close it.