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Date : 04/03/2022

Zip Co Limited (Z1P: ASX) acquired Sezzle and Z1P shares are in a Trading Halt

A prominent worldwide financial services firm, previously known as Zip Money, Zip Co Limited (Z1P: ASX) is an Australian Securities Exchange (ASX) listed company. The company operates in the Buy Now Pay Later space and offers innovative, people-centred solutions that connect consumers and merchants. Aiming to be the first payment option for everyone, everywhere, and every day, Zip currently operates in 14 markets worldwide, including through strategic investments, connecting millions of customers with its global network of tens of thousands of merchants. Zip was founded in 2013 and is headquartered in Sydney, Australia.

Today the company announced a few major press releases. First, it announced half-year results for FY22, and secondly, it acquired Sezzle, another Buy Now Pay Later player here in Australia. The company also announced the halting of trading on ASX for a couple of days. Zip has reported a strong half-year statement increasing its revenue and improving its net loss.

Z1P: 1H 2022 Key Financials

Today, the company announced its results for the first half of 2022, and its stock declined in the trading session today.

  1. Z1P announced revenue and other income surged by more than 89% to reach $302.2 million for the half-year.
  2. The company announced a net loss after tax or NPAT loss of around $173 million for the first half of fiscal 2022. Zip has improved its net loss compared to the same period in 2021. Last year, the loss was around $456 million in the same period.
  3. The gross profit of the company decreased to reach 19%. Its gross profit was around $59 million in 1H 2022 compared to $77 million in 1H 2021.
  4. The company’s EBITDA improved in 1H 2022 compared to 1H 2021. Zip reported an EBITDA of $214 million compared to $453 million.
  5. The basic and diluted loss per share improved to reach 37.55 cents.

Z1P’s Business Achievements

  1. The company completed a record transaction volume TTV of around $4.5 billion, gaining more than 93% compared to 1H 2021.
  2. ZIP completed transaction numbers of 36.3 million, increasing 147% year over year.
  3. ZIP customers increased more than 74% to reach 9.9 million.
  4. Zip’s unique revenue model continued to beat Zip’s peer group, with sales margins of 6.7 percent.

Z1P acquires Sezzle

Zip and Sezzle have signed a formal agreement under which Zip will acquire Sezzle. For each share of Sezzle common stock held (including a CHESS depository interest (CDI) in Sezzle), Sezzle owners will obtain 0.98 ordinary Zip shares. Sezzle’s indicated value in the proposed transaction is approximately $491 million (based on the closing price of Z1P ordinary shares on the Australian Securities Exchange (ASX) on February 25, 2022). With current spot prices of A$1.78 (Sezzle) and A$2.21 (Zip) as of February 25, 2022, the Proposed Transaction values Sezzle at a 22% premium to current spot prices and a 31% premium to a 30-day volume-weighted average price (VWAP) of Sezzle’s ordinary stock on the ASX. Zip shareholders will control around 78% of the merged group post-closing, while Sezzle shareholders would possess approximately 22%. The proposed transaction is scheduled to close by the end of CY2022.

Z1P’s Other Acquisitions in 1H 2022

  1. A significant tech-enabled payments platform operating in the Middle East, Spotii, was acquired in October 2021 for $21.6 million (US$16.9 million) in cash. Employees who had taken part in the Spotii employee stock purchase plan received 285,039 shares, with a total of 2,850,412 shares granted by ZIP.
  2. ZIP finalised the purchase of Central European BNPL provider, Twisto after receiving shareholder approval at the Annual General Meeting in November 2021. For the 87.63% of Twisto’s outstanding shares that Zip did not already control, Zip paid $135.3 million in the total purchase price. Zip issued 17,454,987 additional Zip shares valued at $115.4 million and paid cash of $0.6 million.
  3. During the first half of 2022, Zip spent $69.2 million (US$50.0 million) to purchase an 11.1 percent stake in ZestMoney, an Indian BNPL operator with a global presence.
  4. By investing an additional $2.8 million (US$2.0 million), Zip raised its stake in TendoPay, a key BNPL participant in the Philippines, by 10% to 35%.

Z1P shares Trading Halt

Zip Co Limited (Z1P) has asked for a trading halt on its securities. The securities will remain in a trading suspension until the start of regular trading on March 2, 2022, or the release of the announcement to the market unless ASX deems otherwise.

Z1P 2022 Outlook

ZIP predicts a cash transaction margin of 2.5-3% in the short-term, including:

  1. 5 percent to 7 percent of the total transaction value (TTV) as they grow their distinct revenue model and develop revenue-enhancing goods and services.
  2. As the company optimises risk rules to control credit losses to within management’s goal range of below 2%, they will provide lower-cost processing via scale efficiencies and other repayment choices as well as lower-cost financing possibilities.

Conclusion

The first half of 2022 has been a tremendous period in terms of business expansion. Zip Co acquired Spottii, ZestMoney, Twisto, and Tendopay. Today, the company announced that they had acquired Sezzle as well. Zip Co is currently focusing on acquiring major players in the BNPL space to become the market leader in the industry. ZIP has been extremely keen on global expansion for some time now. The company has also improved its net loss and will improve its profitability once it achieves its expansion goals.

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