Zip Co (ZIP) posts a billion-dollar loss as buy now, pay later loses its excitement

Zip Co has pledged to further reduce the amount of cash it spends on its overseas operations, after announcing the closure of its UK business as it posted a $1 billion loss in full year.

Zip, a key Afterpay rival, revealed further details of its plan to become profitable on Thursday as investors turned their backs on buy now, pay later (BNPL) companies over the past year.

As BNPL stock prices plunged – a trend seen in loss-making tech companies – Zip responded by cutting costs and shedding peripheral overseas assets, focusing instead on its core markets in Australia, New Zealand and the United States.

Following the fall in BNPL valuations, Zip’s net income was hit by $821 million impairments of its goodwill and intangible assets in the US, UK, Europe and the Middle East. . This prompted Zip to post a statutory loss of $1 billion, as the company’s results were also weighed down by bad debts and significantly higher operating costs.

Zip views cash earnings before tax, depreciation, and amortization (EBTDA) as a better reflection of the cash needed to run the business. By that metric, it made a lesser loss of $207 million, and it said it would be profitable on that basis in the first half of 2024.

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Co-founder Peter Gray said the book value of some overseas companies had been reduced because the company was now pricing in slower growth rates in some markets, while rising interest rates had also reduced the value of Zip’s US operations.

“Like many other companies that have adjusted the goodwill or book value of their acquired assets or business, we have done the same. All of our overseas businesses have been written off,” Gray told that masthead.

Gray said he expected Zip’s statutory loss to narrow over the next year as the writedowns were partly a move to “clean up the decks.”