Australian Buy Now Pay Later provider Zip has hemorrhaged money from its operations, revealing a whopping $1bn loss over the last financial year.
Afterpay’s rival announced it was closing its UK business as part of a move to stem its losses.
It comes as experts predicted a potential “carnage” for the BNPL sector this year, as providers burned through cash, bad debt soared and customers stopped using the service, a model they say is not sustainable.
Zip’s huge losses, which include a big jump in its bad debts and higher operating costs, reflect a chilling warning from experts that BNPL providers risk becoming loss leaders and not being profitable at all.
The company’s bad debts, which it was forced to write off, more than doubled, from $82.5 million to $228.9 million, but the company said it has hardened loans and believes these debts have reached its peak.
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It also reported an $821 million loss from its goodwill and intangible assets in the United States, the United Kingdom, Europe and the Middle East, and the company is now undertaking a strategic review of its foreign operations.
Europe and the Middle East are spending about $50 million a year, their results showed.
Zip co-founder Peter Gray said foreign markets had a slower growth rate, causing its value to plunge, while rising interest rates had also reduced the value of its US business. .
The BNPL player’s revenue rose to $620m from $393.9m last year, but he acknowledged that tough economic conditions would cause consumers to pull back on discretionary spending.
But Mr. Gray said the company could weather the recession as customers increasingly use the service for everyday items like gas, groceries and bills.
“There has been a marginal decline in certain categories of discretionary spending. We are arguably very well placed in a market like Australia – we have an account-based concept that offers a significant percentage of our volume from everyday spending categories,” he told the Australian Financial Review.
“The concept allows consumers to pay their bills, purchases, fuel and usage has increased significantly over the course of this calendar year.
“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.”
Earlier this year, the company announced that it would shut down its money management app that it had purchased for $7.5 million and affected 800,000 users.
The company has also taken a beating in the stock market this year with its shares plummeting an extraordinary 76 percent this year.
However, Zip has stated that it could achieve profitability in the first half of 2024.