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Buy now, pay later operator Zip Co says credit losses increased to outside its target range, prompting it to tighten risk settings on lending, as it also said it was cutting $30 million in costs.
In a quarterly update on Thursday, Zip said bad debts in Australia and New Zealand had lifted to 3.4 per cent in the March quarter, up from 2.83 per cent in December. Accounts in arrears in Australia and New Zealand also rose to 2.29 per cent, from 1.64 per cent.
Zip Co co-founder and chief executive Larry Diamond.Credit:Dominic Lorrimer
The company said that as a result, it was changing its risk settings, pointing to machine learning models being rolled out in the US and “comprehensive diagnostic analysis,” which had tempered credit losses in March.
It had also changed its risk settings in Australia, alongside changes in its portfolio management and collections, which it said would drive credit performance back to “normal” levels in the first half of 2023.
Zip, which is loss-making, also said it was accelerating its path to profitability. Earlier this month it had made changes to its global cost base that would cut $30 million from its staff costs in the 2023 financial year.
Zip shares have tumbled this year alongside a wider plunge in BNPL stocks, as investors focus on the impact of higher interest rates on the sector and on valuations of loss-making technology companies.
Zip said its quarterly revenue was up 39 per cent to $159.2 million in the year, but down compared with the December quarter, which it put down to weaker seasonal conditions.
Chief executive Larry Diamond referred to the company’s plan to accelerate profitability that was announced in February, when it also unveiled a takeover of rival Sezzle.
“In the half-year results we acknowledged a change in external factors and announced several adjustments to our strategy - with a refined focus on sustainable growth, strong unit economics and fast tracking profitability.
The quarter saw us continue to deliver top line growth and strong revenue margins, while beginning to implement this refreshed strategy,” Diamond said.
Zip shares last traded at $1.20.