The Zip Co Ltd (ASX:Z1P) share price has come under pressure on Thursday following the release of its half year results. Here’s why…
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In morning trade, the buy now pay later provider’s shares sank almost 10% to $10.73.
The Zip share price has recovered slightly but remains 7% lower at $11.02 at the time of writing.
Why is the Zip share price sinking?
Investors have been selling Zip shares today after it posted a sizeable loss despite its strong revenue growth.
For the six months ended 31 December, Zip recorded a 141% increase in total transaction value (TTV) to $2,320.6 million and a 130% increase in revenue to $160 million. Based on its December run rate, these metrics annualise to $7,500 million and $480 million, respectively.
However, on the bottom line, Zip reported a whopping $455.9 million loss after tax.
What were the drivers of Zip’s huge loss?
Zip revealed that its statutory loss of $455.9 million was driven largely by a number of non-recurring items. The main one is a net non-cash adjustment relating to the acquisition of QuadPay last year.
It explained: “The directors do not consider that the fair value at the acquisition date of the equity instruments granted for the purchase of QuadPay Inc, as measured per AASB 13 Fair Value Measurement, is reflected in the subsequent equity value of the instruments granted or the underlying assets acquired, and accordingly in conjunction with independent valuers, Zip has determined that a Day 1 adjustment of $415.9 million should be made to the carrying value of goodwill.”
This was offset slightly by a revaluation gain of $109.7 million, resulting in the $306.2 million net adjustment.
Excluding these items, Zip reported a loss before tax, depreciation, amortisation, and share based payments of $14.9 million.
What else is weighing on the Zip share price?
In addition to the above, the lack of a trading update appears to have disappointed investors and could be weighing on the Zip share price today.
This disappointment is potentially being compounded by the fact that rival Afterpay Ltd (ASX: APT) didn’t provide a trading update either with its results. Investors may be concerned that this could be a sign that industry growth rates are sliding.
One positive, though, is that despite this sizeable decline, the Zip share price is still up materially year to date. Since the start of the year, it has generated a return of just under 100% for investors.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.