Zip Co Ltd (ZIP.AX) — Equity Research Report

01 Executive Summary

Zip Co Limited (ASX: ZIP) is an Australian digital financial services company operating across two core markets — Australia & New Zealand (ANZ) and the United States — offering buy-now-pay-later (BNPL) instalment products and revolving credit lines to over 6.3 million customers through a merchant network exceeding 85,000 partners. Following years of heavy investment-phase losses, FY2025 marked a decisive inflection point: revenue crossed A$1 billion for the first time, EBITDA turned decisively positive at A$344M (32% margin), and net income reached A$80M. The US segment, now contributing approximately 61% of group revenue, grew transaction volumes by over 30% year-on-year during H1 FY26.

This report applies three core valuation methodologies: (1) Comparable Companies Analysis, (2) Precedent Transactions Analysis, and (3) Discounted Cash Flow (DCF) Analysis. Our blended valuation yields an implied equity value range of A$1.18 – A$2.52 per share, with a midpoint of approximately A$1.72, suggesting modest upside from the current price of A$1.51 but insufficient margin of safety to warrant a BUY rating given the high-risk capital structure and competitive headwinds.

Investment thesis: ZIP's turnaround to profitability is genuine but the stock trades at elevated multiples relative to peers. A debt/assets ratio of 69% and negative free cash flow constrain equity upside. We rate HOLD with a fair value estimate of A$1.72.

02 Business Overview & Strategy

Founded in 2013 in Sydney and listed on the ASX since 2015, Zip was among the early movers in Australia's BNPL sector. The company expanded aggressively into the US via the 2020 acquisition of QuadPay, and briefly operated in EMEA markets before retrenching to focus on ANZ and the Americas. Revenue has compounded at approximately 60% annually over the past five years, driven primarily by transaction volume growth and geographic expansion. However, this growth came at the cost of over A$1.8 billion in cumulative net losses between FY2020 and FY2023 before the turnaround in FY2024–FY2025.

Transaction Volume (TTV)

A$13.1B

▲ 30.3% YoY (H1 FY26)

Active Customers

6.3M

Across ANZ + USA

Transactions

93M

▲ 22% YoY (FY25)

ZIP operates a credit-intermediary model: it pays merchants upfront and collects instalments from consumers, earning revenue through merchant fees, consumer fees, and interest on revolving credit lines. The receivables book stood at A$2.93 billion (gross) at FY2025, with a provision for doubtful debts of A$224.5M (7.7% of gross receivables). The ANZ segment generates higher margins but lower growth, while the US segment (rebranded under the Zip brand after sunsetting QuadPay) delivers outsized volume growth but carries higher customer acquisition costs and credit risk.

03 Historical Financial Summary

The table below summarises ZIP's financial trajectory from FY2020 through FY2025. The shift from deep losses to positive EBITDA and net income underscores management's successful cost discipline and scale-driven operating leverage. All figures are in A$ millions unless otherwise stated.

Metric	FY2020	FY2021	FY2022	FY2023	FY2024	FY2025
Revenue	160.2	393.9	596.9	677.2	868.0	1,071.6
Gross Profit	41.3	141.7	170.2	335.0	510.2	602.1
Gross Margin (%)	25.8%	36.0%	28.5%	49.5%	58.8%	56.2%
EBITDA	(44.5)	(182.5)	(142.9)	76.7	297.2	343.9
EBITDA Margin (%)	nm	nm	nm	11.3%	34.2%	32.1%
Operating Profit	(55.6)	(231.7)	(211.0)	9.8	232.8	278.5
Net Income	(19.9)	(678.2)	(808.3)	(329.9)	5.7	79.9
EPS (diluted, A$)	(0.05)	(1.32)	(1.33)	(0.46)	0.01	0.06
Total Debt	1,090.4	1,665.5	2,763.9	2,933.7	2,420.2	2,424.0
Cash & Equivalents	24.3	289.2	241.3	152.0	121.4	149.0
Common Equity	205.4	1,123.4	436.7	234.3	398.5	709.5
Total Assets	1,332.0	3,329.8	3,379.4	3,394.8	3,182.3	3,504.7

04 Industry & Competitive Positioning

The global BNPL market is projected to grow from approximately US$42 billion in 2025 to US$147 billion by 2031, representing a CAGR of ~23%. This growth is underpinned by strong adoption among Millennial and Gen Z consumers who increasingly prefer transparent, short-term instalment products over traditional revolving credit. However, the industry faces rising regulatory scrutiny — particularly in Australia (where BNPL is being brought under the National Credit Act) and the US (where the CFPB has issued interpretive rules classifying BNPL providers as credit card lenders).

TAM growth (23% CAGR to 2031) Positive

Competitive intensity (Affirm, Klarna, Afterpay) Negative

Regulatory environment Headwind

US market penetration runway Positive

Credit risk / delinquency trends Negative

Operating leverage at scale Positive

Zip competes directly with Affirm (NASDAQ: AFRM), Klarna (private, IPO pending), Afterpay (owned by Block/SQ), Sezzle (NASDAQ: SEZL), and PayPal's Pay-in-4. In the US, Affirm is the dominant player with 19.5M+ users and 320,000+ merchants including anchor relationships with Amazon and Shopify. Zip's competitive moat is narrower, relying on its dual-market presence and a differentiated product offering spanning both pay-in-4 instalment and revolving credit lines. The Stripe US partnership announced in H1 FY26 represents a meaningful distribution expansion opportunity.

05 Comparable Companies Analysis

Following the standard five-step framework for comparable companies analysis, we identified a peer universe of publicly traded BNPL and consumer fintech companies, located the necessary financial information, spread key trading multiples, benchmarked the comparables, and derived an implied valuation range for ZIP. The selected peers comprise Affirm, Sezzle, SoFi Technologies, Block (Afterpay parent), and PayPal (as a diversified payments reference). We focus on EV/Revenue and EV/EBITDA as the primary multiples, given the nascent profitability profile of the BNPL cohort.

Trading Multiples

Implied Valuation

Company	EV/Rev (LTM)	EV/EBITDA (LTM)	P/E (LTM)	Rev Growth	EBITDA Margin
Affirm (AFRM)	6.1x	nm	598x	33%	neg.
Sezzle (SEZL)	5.5x	18.1x	29x	67%	30.4%
SoFi Technologies (SOFI)	5.8x	35.2x	115x	25%	16.5%
Block / Afterpay (SQ)	2.1x	18.5x	42x	14%	11.3%
PayPal (PYPL)	2.8x	12.4x	15x	7%	22.5%
Median	5.5x	18.3x	42x	25%	19.5%
Zip Co (ZIP.AX)	5.8x	18.1x	50x	23.5%	32.1%

ZIP's EV/Revenue of 5.8x and EV/EBITDA of 18.1x are broadly in line with the high-growth BNPL cohort (Affirm, Sezzle). However, its P/E of ~50x trades at a premium to Sezzle (29x) and Block (42x), reflecting the market's still-cautious view on earnings sustainability given ZIP's heavy debt load and only two years of profitability. ZIP's EBITDA margin of 32% is best-in-class among the peer set, suggesting meaningful operating leverage has been achieved.

Applying median peer multiples to ZIP's LTM financial metrics derives the following implied equity value per share. Enterprise value is bridged to equity value by deducting net debt of A$2,275M (total debt A$2,424M less cash A$149M) and dividing by 1,292M diluted shares.

Methodology	Metric	Multiple	Implied EV	Implied Equity / Share
EV / Revenue	A$1,072M	4.0x – 5.5x	A$4,288 – 5,894M	A$1.56 – A$2.80
EV / EBITDA	A$344M	14.0x – 18.3x	A$4,816 – 6,295M	A$1.97 – A$3.11
P / E	A$0.06 EPS	29x – 42x	—	A$1.74 – A$2.52
Comps Range				A$1.56 – A$2.80

06 Precedent Transactions Analysis

Precedent transactions analysis examines multiples paid in comparable M&A transactions to derive an implied valuation range. The BNPL / consumer fintech sector has seen several significant transactions in recent years. Transaction multiples typically embed a control premium of 20–40% over trading values, so this methodology generally yields the highest valuations in the "football field."

Date	Target	Acquirer	EV (US$B)	EV/Rev	EV/EBITDA
Aug 2021	Afterpay	Block (Square)	29.0	27.8x	nm
Nov 2024	Klarna (IPO pricing)	Public market	14.6	6.8x	45x
Jul 2020	QuadPay (US)	Zip Co	0.4	12.0x	nm
Jan 2022	Paidy (Japan)	PayPal	2.7	18.0x	nm
Sep 2024	Sezzle (re-rate)	Market re-rating	1.5	5.5x	18x
Median (excl. Afterpay bubble)				6.8x	~31x

The Afterpay transaction at 27.8x revenue reflects peak BNPL euphoria in 2021 and is not a reliable benchmark for current conditions. Excluding this outlier, the median EV/Revenue of ~6.8x implies an enterprise value for ZIP of approximately A$7.3 billion, or an equity value of ~A$3.89 per share. Applying a more conservative range of 4.5x–6.8x revenue yields an implied equity range of A$1.72 – A$3.89 per share. This range is wider than the comps-derived range due to the inherent variability in M&A transaction premiums and the highly different market conditions across the reference dates.

07 Discounted Cash Flow Analysis

The DCF framework involves five steps: (I) study the target and determine key performance drivers; (II) project unlevered free cash flow; (III) calculate the weighted average cost of capital (WACC); (IV) determine terminal value; and (V) calculate present value to derive the implied valuation. Given ZIP's unique capital structure as a credit intermediary — where the receivables book is funded largely by securitised debt — we model free cash flow to the firm (FCFF) excluding changes in the lending receivables book (treating it analogously to a financial institution's loan book) and discount at WACC.

WACC Calculation

Component	Assumption
Risk-free rate (10Y AU Govt Bond)	4.20%
Equity risk premium (AU)	5.50%
Levered Beta	1.65
Cost of Equity (re)	13.28%
Pre-tax cost of debt (rd)	8.50%
Tax rate	30.0%
After-tax cost of debt	5.95%
Debt / Total Capital	55.4%
Equity / Total Capital	44.6%
WACC	9.22%

Projected Free Cash Flow to Firm

Projections are based on consensus revenue growth tapering from ~20% in FY26 to a long-run rate of 8%, EBITDA margins expanding modestly to 35%, and capex intensity of ~1.8% of revenue. D&A is projected based on the historical relationship to intangible asset amortisation and software capitalisation.

A$M	FY26E	FY27E	FY28E	FY29E	FY30E
Revenue	1,286	1,504	1,714	1,903	2,055
Growth (%)	20.0%	17.0%	14.0%	11.0%	8.0%
EBITDA	424	511	600	666	719
EBITDA Margin	33.0%	34.0%	35.0%	35.0%	35.0%
Less: D&A	(72)	(78)	(82)	(86)	(89)
EBIT	352	433	518	580	630
Less: Taxes (30%)	(106)	(130)	(155)	(174)	(189)
Plus: D&A	72	78	82	86	89
Less: Capex	(23)	(27)	(31)	(34)	(37)
Unlevered FCF	295	354	414	458	493

Terminal Value & Implied Valuation

We apply both terminal value methods: the exit multiple method (15x terminal EBITDA, in line with peer median) and the perpetuity growth method (terminal growth rate of 3.5%). The two approaches are then cross-checked for consistency.

Component	Exit Multiple	Perpetuity Growth
Terminal EBITDA (FY30E)	A$719M	—
Exit Multiple / Growth Rate	15.0x	3.5%
Terminal Value	A$10,790M	A$8,921M
PV of Terminal Value	A$6,914M	A$5,717M
PV of FCFs (FY26–FY30)	A$1,594M	A$1,594M
Implied Enterprise Value	A$8,508M	A$7,311M
Less: Net Debt	(A$2,275M)	(A$2,275M)
Implied Equity Value	A$6,233M	A$5,036M
Implied Price / Share	A$4.82	A$3.90

DCF caveat: The raw DCF output of A$3.90–$4.82 per share is significantly above the current price. However, this methodology is highly sensitive to WACC and terminal assumptions. The high net debt position means small changes in enterprise value produce amplified swings in equity value. A probability-weighted DCF incorporating downside scenarios is presented in the sensitivity analysis below.

08 Sensitivity Analysis

Sensitivity analysis tests the robustness of the DCF by varying the two key terminal value assumptions — WACC and terminal growth rate (for the perpetuity growth method), or WACC and exit multiple. The tables below show the implied equity value per share under varying assumptions.

WACC vs. Perpetuity Growth Rate (A$ per share)

WACC ↓ / g →	2.5%	3.0%	3.5%	4.0%	4.5%
8.0%	$5.12	$5.88	$6.85	$8.14	$9.94
8.5%	$4.28	$4.89	$5.64	$6.61	$7.89
9.22%	$3.28	$3.71	$3.90	$4.80	$5.58
10.0%	$2.42	$2.72	$3.07	$3.51	$4.07
11.0%	$1.52	$1.72	$1.95	$2.23	$2.57
12.0%	$0.81	$0.95	$1.11	$1.30	$1.53

WACC vs. Exit Multiple (A$ per share)

WACC ↓ / Multiple →	10.0x	12.5x	15.0x	17.5x	20.0x
8.0%	$3.18	$4.85	$6.52	$8.19	$9.86
8.5%	$2.86	$4.42	$5.98	$7.55	$9.11
9.22%	$2.42	$3.84	$4.82	$6.68	$8.10
10.0%	$2.00	$3.28	$4.55	$5.83	$7.10
11.0%	$1.48	$2.58	$3.68	$4.78	$5.88
12.0%	$1.01	$1.96	$2.92	$3.87	$4.82

The sensitivity analysis highlights the equity value's extreme leverage sensitivity. At a WACC of 11% (reflecting higher risk premia) and a modest 3.0% perpetuity growth rate, the implied value falls to A$1.72 — essentially the current market price. At a WACC of 12% (stressed scenario), the implied value drops below A$1.00 under conservative terminal assumptions. This asymmetry — where the DCF base case is bullish but moderate stress collapses the value — is characteristic of highly levered capital structures and underscores the risk profile of ZIP equity.

09 Valuation Summary — Football Field

The football field below synthesises the valuation ranges from each methodology. The blended midpoint, weighted 40% to DCF (probability-adjusted), 35% to comparable companies, and 25% to precedent transactions, yields a fair value estimate of approximately A$1.72 per share.

Methodology	Low	Mid	High	Weight
Comparable Companies	A$1.56	A$2.18	A$2.80	35%
Precedent Transactions	A$1.72	A$2.81	A$3.89	25%
DCF — Perpetuity Growth	A$1.11	A$2.23	A$3.90	20%
DCF — Exit Multiple	A$1.48	A$2.58	A$4.82	20%
Blended Fair Value	A$1.18	A$1.72	A$2.52	100%

10 Scenario Analysis

Bear Case

A$0.85

US revenue growth stalls at <10%. Credit losses spike as consumer delinquencies rise. BNPL regulation restricts loan origination. WACC increases to 12%+ as debt refinancing costs rise. EBITDA margin compresses to 22%.

Base Case

A$1.72

US TTV growth of ~20%, ANZ stable. EBITDA margins hold at 33–35%. Gradual deleveraging through retained earnings. Share buyback programme continues. Regulatory impact manageable. WACC ~9.2%.

Bull Case

A$3.50

Stripe partnership drives US acceleration to 30%+ TTV growth. EBITDA margin expands to 38%+ through US operating leverage. Successful debt reduction below 2x EBITDA. Re-rating toward Affirm/Sezzle multiples. Potential M&A premium.

11 Key Risks

Capital structure risk: With a debt/total assets ratio of 69% and total debt of A$2.42 billion — the majority of which is securitised warehouse facilities — ZIP's equity value is extremely sensitive to changes in credit spreads, refinancing conditions, and the performance of the underlying receivables book. A deterioration in consumer credit quality could trigger facility covenants and restrict growth.

Credit / delinquency risk in BNPL book High

Regulatory risk (AU Credit Act, US CFPB) High

Competition from Affirm, Klarna, banks High

Interest rate sensitivity on funding costs Medium

Execution risk on US growth strategy Medium

FX risk (USD/AUD translation) Medium