Zip Co has vowed to further reduce the amount of cash it spends on its overseas operations, after announcing the closure of its UK business as it made a $1bn loss for the full year.
Zip, a key rival to Afterpay, revealed more details on Thursday about its plan to go profitable as investors turned their backs on buy now, pay later (BNPL) businesses in the past year.
As BNPL share prices have tumbled, a trend seen in losing tech companies, Zip has responded by cutting costs and ditching peripheral assets abroad, to focus on its core markets in Australia, New Zealand and China. and USA
Following the collapse of BNPL valuations, Zip’s bottom line was impacted by $821 million of impairment of its goodwill and intangible assets in the US, UK, Europe and the Middle East. This pushed Zip into a statutory loss of $1 billion, with the company’s bottom line also hurt by bad debts and sharply higher operating costs.
Zip views cash earnings before taxes, depreciation and amortization (EBTDA) as a better reflection of the cash needed to run the business. By this measure, it had a minor loss of $207 million and said it would be profitable on this basis through the first half of 2024.
Co-founder Peter Gray said the book value of some overseas businesses had been reduced because the company was now factoring in slower growth rates in some markets, while rising interest rates also lowered the value of the business. American Zip.
“Like many other companies that have adjusted the goodwill or book values of their assets or businesses they have acquired, we have done the same. All of our foreign business has been noted,” Gray told this headline.
Gray said he expected Zip’s statutory loss to narrow over the next year as the write-downs were partly a move to “clean the decks.”