Zip Co. expects “significant” capital inflows from asset sales as it prepares to exit most of its markets, unwinding a years-long expansion after a slump in the once red-hot “buy now, pay later” industry.
(Bloomberg) — Zip Co. expects “significant” capital inflows from asset sales as it prepares to exit most of its markets, unwinding a years-long expansion after a slump in the once red-hot “buy now, pay later” industry.
The Australian company is trying to win back investors after a 95% stock slump over the past two years by selling or ending operations in 10 of 14 markets around the world. The firm, like many peers, is struggling to reach profitability amid intense competition and a slowdown in online spending in the aftermath of the pandemic.
Chief Executive Officer Larry Diamond says Zip is already making good progress on its plan, announced last week, to sell or end its operations in India, the Philippines, Turkey, Czech Republic, South Africa and Poland, along with a previously disclosed decision to exit Singapore, the UK, Mexico and the Middle East. Zip, the biggest rival to Afterpay in Australia, will be left with operations in its home country, as well as New Zealand, the US and Canada.
“We expect significant inflows from those regional sales,” Diamond said in a video interview from New York. “We are well progressed.”
The firm is working with boutique advisory firms to sell assets in the various international markets, a process set to be completed by the end of June, he said. The divestments are part of a plan to reach positive cash flow by the first half of 2024.
Since last year, Zip has jettisoned plans to acquire rival firm Sezzle and cut back spending, reversing its ambition to build a global payments powerhouse.
“It’s been a tough six to 12 months to reach that conclusion,” Diamond said. “But we are also pragmatic and realistic about our position; those markets would’ve taken three to four years to achieve profitability,” he said, referring to emerging markets. In the Philippines, Zip had bought a stake in TendoPay with an option to buy the rest of the firm, he said.
What Bloomberg Intelligence Says:
“Zip could hit its fiscal 1H24 target of a cash Ebtda profit vs. an A$33.2million loss in fiscal 1H ended Dec. 31, due to a turnaround in its non-ANZ business, which lost A$48 million. Headcount cuts and non-core geographical rationalization, including the UK’s closure, will help.”
-Matt Ingram, analyst
Cilck here for research
Valuations of other consumer credit providers have also declined amid a broader tech slump. US-based Stripe Inc. has lowered its value by tens of billions of dollars, while Klarna Bank AB, once Europe’s most valuable startup, completed a down round that saw its valuation plummet to $6.7 billion from $45.6 billion.
The “buy now, pay later” arena in particular is struggling. Zip and its peers provide interest-free digital installment credit as an alternative to credit cards. The industry boomed during the pandemic amid a wave of cheap debt and surging online shopping. However, it’s now bracing for rising interest rates, consumer malaise and stricter regulations. Governments around the world are concerned about alleged predatory tactics and the potential to draw unwary borrowers into a debt trap.
Australia’s corporate watchdog wants to regulate “buy now, pay later” products in line with traditional consumer credit offerings, in favor of the strictest of three regulatory options offered by the government.
“Products with similar characteristics and the same purpose and function should be treated the same way in the regulatory framework,” the Australian Securities and Investments Commission said in a submission to the federal government dated January.
New Zealand is pursuing similar regulation of the sector, with plans to require the lenders to conduct an affordability check on customers before agreeing to a loan above NZ$600 ($374).
Diamond said Zip is prepared for regulation, a natural evolution as the industry matures.
“We are ready for regulation,” he said. “We just advocate for the right level because we believe that BNPL is pioneering, is changing the shape of financial services, doing it in a way that’s customer-centric.”
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