Australia's Zip tumbles 50% after fraud incident dents first-quarter customer growth

By Reuters News

Oct 23 (Reuters) - Australia's Zip Co ZIP.AX said on Friday an external fraud incident in the US during its fiscal first quarter temporarily weighed on transaction volumes and new customer growth, sending its shares to their lowest level in more than two years.

Shares of the buy now, pay later firm plunged as much as 50.5% to A$1.025 by 2322 GMT, marking their worst intraday session. The selloff erased about A$1.30 billion ($912.08 million) from Zip's market value in early trade before the shares pared some losses.

  • Analysts at Citi said the incident "raises concerns on Zip's onboarding controls", while Jefferies said investors would need greater clarity on whether the increase in operating expenses would persist and how the company plans to prevent similar incidents in future

  • UBS analysts said a key miss was a sharper-than-expected rise in the net bad debts ratio, which came in at 1.97% against their estimate of 1.8%, partly because the fraud event temporarily slowed growth in total transaction value (TTV) in July and August

  • Zip said it identified and contained an external fraud incident involving coordinated actors opening new accounts using legitimate credentials to execute unpaid transactions

  • The incident affected TTV and new customer growth in July and August and resulted in A$10.1 million of cash operating expenses. Zip said it had notified relevant authorities and lodged an insurance claim

  • Net bad debts were 1.93% of TTV in the quarter ended September 30, with some impact from TTV being temporarily moderated by measures taken to contain the fraud

  • Despite the incident, TTV rose 18% to A$4.6 billion in the quarter, while cash earnings before tax, depreciation and amortisation (EBTDA) increased 3.4% to A$65 million


($1 = 1.4253 Australian dollars)

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