Digital Payments And ECommerce Trends Will Expand International Markets

Key Takeaways

• Strategic partnerships and tech investments are fueling revenue growth, improved margins, and risk management while reducing customer acquisition costs.
  
• International growth and rising adoption among younger consumers strengthen market positioning and support long-term scalability.
  
• Rising regulatory pressures, competition, and structural challenges threaten Zip Co's growth prospects, profitability, and margins as it expands product offerings and shifts geographic focus.

Catalysts

Engages in the provision of digital retail finance, personal finance, and payments solutions in Australia, New Zealand, and the United States.

• Zip Co is poised to benefit from the accelerating shift toward digital payments and increasing e-commerce penetration, as evidenced by strong transaction volumes (up 30%) and targeted partnerships with platforms like Google and Stripe, which are likely to drive higher transaction values and revenue growth.
  
• Enhanced adoption among Millennials and Gen Z, who favor flexible, interest-free payment options, is driving increased transaction frequency and customer engagement (with transactions per active customer up 62% over two years), supporting durable volume growth and inflating total revenue.
  
• The company's ongoing international expansion-particularly in the underpenetrated U.S. market where BNPL is less than 6% of e-commerce spend-provides significant runway for organic revenue growth and supports geographic diversification, de-risking the business model and enabling long-term scale.
  
• Improvements in underwriting and credit risk management, alongside investments in AI and machine learning, have resulted in better credit outcomes and lower bad debts (net bad debts now 1.5% of TTV), which bolster net margins and underpin increasing cash earnings.
  
• Scaling distribution through partnerships and embedded finance with major merchants and platforms (such as Google Pay, Stripe, and large retailers in key verticals) is decreasing customer acquisition costs and increasing take rates, which should drive further operating leverage and higher earnings.

Zip Co Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zip Co's revenue will grow by 17.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.5% today to 12.5% in 3 years time.
• Analysts expect earnings to reach A$216.7 million (and earnings per share of A$0.16) by about August 2028, up from A$79.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$266 million in earnings, and the most bearish expecting A$122 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.6x on those 2028 earnings, down from 65.4x today. This future PE is greater than the current PE for the AU Consumer Finance industry at 13.2x.
• Analysts expect the number of shares outstanding to decline by 1.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.28%, as per the Simply Wall St company report.

Zip Co Future Earnings Per Share Growth

Risks

• Increasing regulatory scrutiny in key markets (especially the US and Australia) may result in higher compliance costs, tighter underwriting standards, and more complex customer onboarding, potentially restricting product offerings and slowing customer and revenue growth.
  
• The long-term sustainability of low credit losses is uncertain; as Zip Co scales, expansion into new customer segments or more complex/specialized products (e.g., Pay-in-8, personal loans) could lead to higher bad debts and increased provisions, negatively impacting net margins and earnings.
  
• The broader BNPL industry faces intensifying competition from incumbent financial institutions, other fintechs, and emerging payment methods (e.g., digital wallets, direct bank links), risking pricing pressure and possible stagnation or decline in Zip Co's transaction volumes and market share, which would affect top-line revenue growth.
  
• Continued margin compression risk arises from Zip's increasing dependence on the US business, which operates at a lower revenue margin than ANZ; this product and geographic mix shift may limit Zip's ability to sustain improvements to overall operating or net profit margins, affecting future earnings growth.
  
• Structural pressures from rising (or potentially volatile) interest rates could increase Zip Co's cost of funding and reduce consumer borrowing demand; while management is currently benefiting from refinancing at lower margins and potential rate cuts, future cycles or credit tightening may reverse this trend, directly lowering Zip Co's net margins and profitability.

Valuation

• The analysts have a consensus price target of A$4.442 for Zip Co based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$5.0, and the most bearish reporting a price target of just A$4.08.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.7 billion, earnings will come to A$216.7 million, and it would be trading on a PE ratio of 32.6x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of A$4.05, the analyst price target of A$4.44 is 8.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.