Zip Co Earnings Call Signals Profitable Growth Push

Zip Co Ltd. ((AU:ZIP)) has held its Q2 earnings call. Read on for the main highlights of the call.

Zip Co’s latest earnings call struck an upbeat tone as management detailed record cash earnings, expanding margins and strong growth across key markets, particularly in the U.S. Executives acknowledged pockets of pressure from higher loss rates on longer‑duration products, FX headwinds and elevated corporate costs, but argued these risks are manageable against a backdrop of accelerating profitability and disciplined risk controls.

Record Earnings and Margin Expansion

Zip reported record cash earnings of $124.3 million, an 86% year‑on‑year jump that underscored the company’s move into a more profitable phase. Operating margin expanded by 569 basis points to 18.7%, highlighting the benefit of scale and tighter cost discipline as revenue growth increasingly drops through to the bottom line.

Top-Line and Transaction Growth Accelerates

Total transaction volume climbed to a record $8.4 billion, up 34.1% year on year, supported by 55 million transactions across the platform. This combination of higher throughput and more frequent usage signals improving customer engagement and confirms that Zip is capturing a growing slice of buy now, pay later and installment spending.

U.S. Market Delivers outsized Momentum

The U.S. business remained the key growth engine, with TTV surpassing $4 billion and revenue reaching $292 million for the half. TTV growth of 44.2% and revenue growth of 46.4% were matched by a 70% rise in U.S. cash EBITDA, meaning profitability is now scaling faster than sales in this critical market.

Customer and Merchant Base Expands

Group active customers increased to 6.6 million, up 4.1% year on year, while U.S. active customers grew around 10%, reflecting strong demand in that region. Merchant numbers rose more than 10% to over 90,000, helped by the Stripe integration, which alone added more than 1,400 merchants in just four and a half months of general availability.

ANZ Region Posts Sharp Profit Improvement

In Australia and New Zealand, cash earnings surged 138% year on year, supported by better spreads and cleaner credit performance. Excess spread widened by 241 basis points, arrears rates improved by 21 basis points, and both transactions and TTV per customer rose more than 20%, indicating healthier unit economics in the core market.

Stronger Profitability on All Metrics

Cash gross profit climbed 33.5% to $314.3 million, showing that Zip’s revenue growth remains profitable after funding and processing costs. Cash EBITDA rose 85.6% to $124.3 million, while statutory net profit after tax jumped 127.6% to $52.4 million, confirming that headline accounting earnings are now firmly in positive territory.

Funding Costs Ease and Liquidity Strengthens

Funding conditions continued to improve, with interest expense as a share of TTV falling 38 basis points to 1.3%, easing a key drag on margins. The group ended the half with $239 million of cash and liquidity and executed several term deals, including major Australian ABS issues and a new U.S. warehouse, further diversifying and extending its funding base.

Product Innovation and AI Integration

Zip pushed ahead with product expansion, rolling out Pay‑in‑2 across its customer base, piloting My Bills and Money Coach in the U.S., and lifting Zip Plus limits to $20,000 in ANZ. Partnerships with Stripe and Google were complemented by scaled AI tools, including the Ziggy chatbot, which now resolves about 65% of customer interactions, helping lower service costs and improve response times.

Capital Management Focus on Shareholder Returns

Management highlighted a more assertive capital management stance, completing a $100 million on‑market buyback of 34.9 million shares at an average price of $2.86. The company also acquired 5.9 million shares for its employee share trust, helping offset dilution from incentives and signalling confidence in the long‑term value of the equity.

Managing Higher Losses in Pay-in-8

The Pay‑in‑8 product now represents about 20% of the portfolio and carries higher losses because of its longer term and larger ticket sizes, nudging group loss metrics higher. To contain risk, management has capped Pay‑in‑8 at roughly 20% of receivables, prioritising asset quality and keeping the overall loss profile within target ranges.

U.S. Provisioning and Bad Debt Discipline

A small increase in the U.S. expected credit loss provision reflected strong volume growth and a rising number of new active customers in that market. Net bad debts stood at 1.7% of TTV, toward the upper half of the 1.5%–2.0% target band, underscoring that the company still has limited headroom and must remain vigilant on underwriting standards.

Margin Mix Pressures from U.S. Growth

While group cash net transaction margin came in at 3.8%, management noted that U.S. margins are structurally lower than ANZ. As the faster‑growing U.S. segment and newer products take a larger share of the mix, the blended net transaction margin could drift toward the lower end of the company’s guidance range despite overall earnings growth.

FX Headwinds to Reported Results

A stronger U.S. dollar versus the Australian dollar is expected to trim reported AUD cash EBITDA in the second half, based on the company’s disclosed sensitivities. Management estimated that, on current rates, FX could reduce cash EBITDA by roughly $5 million, though existing hedging programs should offset part of that impact.

Higher Corporate and Dual-Listing Costs

Operating expenses were affected by higher corporate spending tied to preparatory work for a potential U.S. dual‑listing and continued investment in innovation labs. Management framed these as short‑term costs that weigh on near‑term profit, but are intended to support future growth, capital markets access and product development.

Cautious Stance in Second-Half EBITDA Guidance

Despite strong momentum in transactions and revenue, Zip guided that second‑half cash EBITDA will be broadly in line with the first half. This conservative posture appears to allow for potential pressures from product mix, provisioning and higher operating costs, signalling that management prefers to under‑promise while still delivering robust full‑year results.

Limited Transparency on Product-Level Losses

The company declined to provide detailed loss metrics for individual products such as Pay‑in‑2, Pay‑in‑4 and Pay‑in‑8, frustrating some investors seeking deeper granularity. That lack of disclosure leaves room for uncertainty around the long‑term economics and risk profile of each offering, especially as the product mix continues to evolve.

Guidance and Outlook

Looking ahead, Zip reconfirmed its FY 2026 targets while upgrading operating margin guidance to above 18% and lifting expected cash EBITDA as a share of TTV to more than 1.4%. Management also reiterated a cash net transaction margin range of 3.8%–4.2%, expects net bad debts to stay in the upper half of the 1.5%–2.0% band, will cap Pay‑in‑8 at about 20% of the book and continues to target U.S. TTV growth above 40%.

Zip’s earnings call painted the picture of a fintech transitioning decisively from growth at all costs to profitable scale, with the U.S. and ANZ both contributing meaningfully. While higher‑risk products, FX volatility and rising corporate costs remain watchpoints, investors were left with a story of accelerating earnings, improving funding and a management team signalling confidence through upgraded guidance and active capital returns.