Zip Co Limited has undergone a remarkable transformation from growth-focused fintech to sustainably profitable financial services provider. The company delivered exceptional 1H25 results with Cash EBITDA of $67.0 million (+117% YoY) and total transaction volume growth of 23.9% to $6.2 billion, demonstrating the viability of its refined business model.

The US market has emerged as Zip's primary growth engine, contributing approximately 70% of group TTV with accelerating momentum (39.2% YoY growth). Key growth drivers include expanding in-store payment adoption (now 22% of US TTV with 64% YoY growth), deeper customer engagement, and strategic merchant partnerships in high-value verticals including travel, entertainment, and automotive.

Following 18 months of margin optimization, the ANZ business returned to growth in Q2 with December TTV in Australia up 10% year-on-year. Product innovations including Zip Plus (driving 42% higher transaction frequency) and the recent launch of Personal Loans are expanding the addressable market beyond traditional BNPL offerings.

The company has significantly strengthened its financial position by eliminating corporate debt and raising $267 million in equity, providing substantial flexibility for growth investments. However, regulatory uncertainty persists with the CFPB investigating potential consumer protection violations in the US business, creating material risk despite management's confidence in minimal operational impact.

Zip Co Limited (ASX: ZIP) is a prominent player in the digital retail finance and payments industry, established in 2013 and headquartered in Sydney, Australia. The company provides point-of-sale credit and digital payment services, connecting consumers with merchants through flexible payment options across Australia, New Zealand, and the United States after streamlining operations to focus on these core markets.

Originally founded by Larry Diamond and Peter Gray with the goal of disrupting traditional credit cards, Zip has evolved into a significant fintech player serving approximately 6.3 million active customers and 81,900 merchants. The company has been listed on the Australian Securities Exchange since 2015 and operates through a diversified revenue model including merchant fees, consumer charges, transaction processing fees, and interchange fees.

Leadership is headed by Group CEO Cynthia Scott, appointed in August 2023, with the Board chaired by Diane Smith-Gander AO. Co-founders Diamond and Gray remain actively involved, with Diamond serving as US Chairman and Gray transitioning to Head of Strategic Growth. This blend of founding vision and professional management reflects Zip's maturation from startup to established fintech company focused on sustainable profitability and operational excellence.

Zip's 1H25 results showcase exceptional financial momentum, with the company delivering record Cash EBITDA of $67.0 million, representing a 117.1% increase year-on-year. This performance validates the company's strategic pivot toward sustainable profitability while maintaining robust growth, with total transaction volume increasing 23.9% to $6.2 billion.

The US business has emerged as Zip's primary growth engine, contributing approximately 70% of group TTV with remarkable 39.2% year-on-year growth to $4.4 billion. This acceleration was driven by exceptional holiday trading performance, deeper customer engagement with average spend and transaction frequency increasing by approximately 33% and 30% respectively, and continued expansion of in-store payments which now represent 22% of US TTV with 64% year-on-year growth.

Following 18 months of margin optimization, the ANZ business returned to growth in Q2 with December TTV in Australia up 10% year-on-year, though the overall half-year performance remained slightly negative at -1.2%. The segment has successfully expanded portfolio yield to 18.6% (+110bps) and excess spread to 6.9% (+70bps), positioning it well for sustained profitability as transaction volumes recover.

Zip has significantly strengthened its balance sheet, eliminating all corporate debt following a successful $267 million equity raise and increasing available cash and liquidity to $195.5 million (+143% from June 2024). The company is well-positioned to meet its FY25 guidance of at least $147 million Cash EBITDA, with the 1H25 result representing approximately 46% of the full-year target.

Our financial projections anticipate continued revenue growth moderating from 20% in FY26 to approximately 12% by FY29 as markets mature and the company scales. The US segment is expected to drive the majority of growth with TTV expansion from 35% initially to 15% over the forecast period, while the ANZ segment should accelerate from 5% to 8% as new products gain traction.

Cash EBITDA margins are projected to expand from the current 13.2% to 18.0% by FY29, driven by improved unit economics, enhanced credit performance, and operating leverage. Cash Net Transaction Margin should increase from 3.8% to 4.3% as the product mix shifts toward higher-margin offerings like Zip Plus and Pay-in-8.

Free cash flow generation remains constrained in the near term due to working capital requirements from receivables growth, with the business expected to turn FCF positive in 1H27. By the end of the forecast period, FCF conversion should improve to over 60% of NOPAT as the business reaches scale and receivables growth moderates.

Zip faces material regulatory risk, particularly in the US where the CFPB has indicated potential legal action regarding alleged violations of consumer protection statutes. While management believes operational changes would not materially impact the business model, regulatory actions could impose financial penalties, require process changes, and damage merchant relationships.

As a consumer credit provider, Zip remains vulnerable to economic cycles that could impact both transaction volumes and credit quality. Despite improved unit economics and enhanced underwriting capabilities, a significant economic contraction could delay achievement of long-term margin targets and strain the business model.