Zip co-founder says it should be ‘recession proof’ as bad debts fall

Zip Co co-founder Peter Gray has argued the buy now, pay later (BNPL) company can be resilient if the United States goes into recession, after the embattled fintech reported that the number of bad debts it was recording had fallen dramatically.

In a quarterly update on Tuesday, Zip said it crucial US business had posted a “very strong seasonal performance” in the three months to December, it was making progress in its mission to make sustainable profits. Analysts highlighted that Zip continued to burn through cash, but the company maintained it had enough cash to support it until it was making profits.

Amid market worries about the potential for a US recession, Gray argued the turnaround in its bad loans showed that Zip could be resilient to changes in economic conditions, including a potential recession.

“I think arguably, the US is very close to that scenario now, and the results that we’re delivering prove the strength and resilience of the model. I think we’re really well-placed, I look forward to continued sustainable growth and profit over the next six to nine months, and we’ll demonstrate the power of Zip and the power of the model through an economic downturn,” Gray said.

“Zip should be recession-proof.”

Zip, the second-biggest local BNPL business behind Afterpay, faced intense in pressure in 2022 as its share price collapsed by up to 95 per cent from its peak, amid a wider plunge in valuations of loss-making technology businesses.

The company, which provides short-term consumer loans, responded by slashing costs, closing overseas businesses, tightening lending, and setting out a plan to move into profitability in the first half of 2024.

On Tuesday, Zip argued it was making progress, as it posted 12 per cent revenue growth, and sharply lower bad debts in the US, a critical market.

Zip said its preferred measure of cash earnings before tax, depreciation and amortisation (EBTDA) in the US were positive in November and December, and it was on track for his metric to be “positive on a sustainable basis” from the end of this financial year.