Summer Series: Zip Co (ASX: Z1P)

HOSTS Alec Renehan & Bryce Leske|21 December, 2020

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

Welcome to the Equity Mates Summer Series of 202 brought to you by Superhero.

Over 12 episodes we dive into some of Australia’s largest and most well-known companies, as selected by you, the Equity Mates community.

In each episode we unpack:

  • A company summary
  • The industry
  • Their competition
  • The outlook and future plans
  • Key financials
  • Valuation

For some of the companies, we’ve been lucky enough to get access to the CEO, where we take some of the tough questions straight to them.

To kick off the Equity Mates summer series, we’re starting with one of the ASX’s market darlings for 2020, Zip Pay. Part of the Buy Now, Pay Later sector, Zip is up over 70% year to date and up over 700% since changing its name in January 2018. 

Superhero offers unlimited $5 trades on ASX-listed shares. For more information or to sign-up, head to their website here.

*******

If you want to let Alec or Bryce know what you think of an episode, contact them here

*****

Some of our favourite resources and offers to help you during your journey:

*****

Make sure you don’t miss anything Equity Mates related by signing up to our email list. And visit this page if you love everything Equity Mates and want to support our work.

*****

Equity Mates Investing Podcast is a product of Equity Mates Media. 

All information in this podcast is for education and entertainment purposes only. Equity Mates gives listeners access to information and educational content provided by a range of financial services professionals. It is not intended as a substitute for professional finance, legal or tax advice. 

The hosts of Equity Mates Investing Podcast are not financial professionals and are not aware of your personal financial circumstances. Equity Mates Media does not operate under an Australian financial services licence and relies on the exemption available under the Corporations Act 2001 (Cth) in respect of any information or advice given.

Before making any financial decisions you should read the Product Disclosure Statement and, if necessary, consult a licensed financial professional. 

Do not take financial advice from a podcast. 

For more information head to the disclaimer page on the Equity Mates website where you can find ASIC resources and find a registered financial professional near you. 

In the spirit of reconciliation, Equity Mates Media and the hosts of Equity Mates Investing Podcast acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and expend that respect to all Aboriginal and Torres Strait Islander people today. 

*****

Have you just started your investing journey? Head over to Get Started Investing – Equity Mates 12-part series with all the fundamentals you need to feel confident to start your investing journey.

Want more Equity Mates? Subscribe to our social media channels (@equitymates), Thought Starters * Get Started Investing mailing list and more, or check out our Youtube channel.

Equity Mates Investing Podcast is part of the Acast Creator Network.

Bryce Leske: [00:01:54] Welcome to the Equity Mates Summer Series of 2020 brought to you by Super Hero over the next 12 episodes, we're going to be diving into some of Australia's largest and most well-known companies as selected by you, the Equity Mates community. We'll be unpacking the company, its industry, its key outlooks, and some of the key financials. And also, in some instances, we'll be lucky enough to be taking the tough questions straight to the CEO to do this. As always, I'm joined by my equity buddy, Ren. How it's going bro? [00:02:22][27.9]

Alec Renehan: [00:02:23] I'm very good, Bryce. I'm looking forward to this summer series of favorite times of the year. [00:02:28][5.0]

Bryce Leske: [00:02:28] Yes, that's because we're going on holiday. [00:02:30][1.5]

Alec Renehan: [00:02:31] Yeah, yeah, yeah. You're going to be trying to get that ever elusive tan, right? I leather and myself and sunscreen. [00:02:39][8.5]

Bryce Leske: [00:02:40] sunscreen strong enough for this summer. [00:02:43][3.0]

Alec Renehan: [00:02:43] I'll be doing my own personal lockdown. Yes. [00:02:46][2.4]

Bryce Leske: [00:02:47] Exciting times, Ren. As always, we do this over each of the last few summers. We dove into either in industry or specific companies and we've been lucky enough to partner with Superhero to do 12 episodes. So we might as well kick straight into it for this episode. [00:03:01][13.6]

Alec Renehan: [00:03:02] Let's do it. So the first company we're going to be talking about is a company that has got a lot of headlines this year. It's had a very interesting year, very good year. If you're a shareholder in a very interesting sector, probably your second favorite sector after the cryptocurrency sector. [00:03:18][16.1]

Bryce Leske: [00:03:18] Come on right now, try. [00:03:19][1.2]

Alec Renehan: [00:03:20] And gambling's so bad for private sector. But anyway, we're talking about an hour pilot stock and we're talking zip pay ASX Ticker Z one P. [00:03:29][8.6]

Bryce Leske: [00:03:29] That's right, Ren. And this one, we have been lucky enough to secure some time with Larry Diamond, who is the CEO and founder of the app. So we'll be releasing a bonus episode where we take some of the tough questions straight to Larry as submitted by the Equity Mates community. So stay tuned for that. [00:03:45][15.9]

Alec Renehan: [00:03:45] Well, that should be in your feed right now. Right now, unless you're listening to this, the second that it drops and then it will be very soon. [00:03:53][7.3]

Bryce Leske: [00:03:53] So Ren, what we will be doing in this episode and in all subsequent episodes for the summer series is looking at five key areas for the company, starting off with just a bit of a summary, then looking at the industry context, as well as major competitors, having a look at the outlook and I guess their strategy over the next few years, digging into some of the financials. And then, as always, we try and close out with a bit of a valuation, looking at different ways that we can approach that, I guess, as a warning as well. These are not buying, hold, sell recommendations. We're not going to be speaking about that at all. This is purely just a way to demonstrate the way that we think about researching companies, but also Ren. It's pretty exciting because for all of these episodes, we've actually had research assistance from the Equity Mates community. So, Zip, we're very thankful to Morgan, who has helped us with this one. So Morgan, shout out to you. You done an awesome job. Well, we'll say yes. [00:04:49][56.0]

Alec Renehan: [00:04:50] Yes. Let's start with the company summary, and I think some people will be familiar with it. But let's assume that we're not. So zipper's in the by now highlight a sector and it provides digital payment services to consumers, basically as an alternative to credit cards. And in a nutshell, rather than paying for something upfront or putting something on a credit card, it allows you to pay in installments over a period of time. The company's mission is to be the first payment choice everywhere and every day. And it's really focused on small and medium enterprises, although as we'll get into it, says its focus on small to medium enterprises, it's done deals with like Bunnings, Amazon. So I think I think it's focused on whatever business we have it. But we'll get into that quick question. [00:05:41][50.8]

Bryce Leske: [00:05:41] Their mission to be the first payment choice everywhere and every day. Do you use it? [00:05:44][3.5]

Alec Renehan: [00:05:44] No, I've never used a buy now pay later, a service, old school. I also have a credit card, but I try not to use it. Yeah, interesting. Yeah, I just don't buy things. That's really that's my secret. So that is true. There is you have liquidity issues. Very, very rarely will be say in a retail store. [00:06:03][18.8]

Bryce Leske: [00:06:04] Oh sure. Sure. Anyway, we [00:06:06][2.1]

Alec Renehan: [00:06:06] digress. So I think maybe for those people unfamiliar with the Binalong highlight a sector, do you want to just give us a quick buy now pay later highlight a one on one? [00:06:13][7.5]

Bryce Leske: [00:06:14] Sure. So it is different to credit cards, as you alluded to, Ren. And there are sort of three major differences. The first being that there is no interest for the customer. So that's what makes it appealing to a lot of the millennials who are signing up. If there's no interest incurred on those expenses, if you're using the services correctly, the retailer is actually charged a percentage of the transaction. So that's where ZIP and, you know, their competitors have to pay and the like make their money through the retailer transaction clip. And then thirdly, Ren, they make their money through late fees for customers as well. So I think from memory, you generally have about four periods in which you have to pay off your. Transaction, and then after that, they make their money on late fees. So that's kind of the three main ones for the buy now pay later sector. [00:07:01][46.9]

Alec Renehan: [00:07:01] Yeah, and I think to give you an idea of just the impact that the Binalong highlighter sector has had on the I guess, the Australian credit landscape, you would call it 2020, has been a terrible year for Australian credit cards, which is actually a great year for Australian consumers. So it's something we love to say. But seven point three billion dollars has been wiped off Australia's collective credit card debt in twenty twenty seven hundred and ninety one thousand personal credit cards were canceled in twenty twenty and there were 11 million fewer credit card transactions in September. Twenty twenty than January. Twenty twenty. Now, obviously, covid had an effect on that obviously job. Kaper and job seeker had an effect on that. But at least some of that impact is due to a better credit product being offered to Australian consumers. So I think by now, pay later has obviously been big in terms of stock chart and in the Equity Mates community and every investing community in Australia. But I think it offers an alternative and from a financial perspective, alternative for Australian consumers and it is starting to have a meaningful impact. [00:08:08][66.5]

Bryce Leske: [00:08:08] Yeah, so Zib, you know, to the regular retail investor, might seem like it just offers the digital line of credit, which is, I guess, what we would use if we're buying from shops online. But they also offer something called Zipp Business, which is an interest free digital line of credit for small to medium enterprises. And they have a zip app, which is a digital wallet and pocket book, personal finance app, to manage finances budgets and help you with your savings. So they have their fingers in a few pies in terms of operations Ren they operate in Australia, the UK and New Zealand USA through a company called Quod Pay. And I think they're in South Africa as well through an acquisition called Pay Fleck's. So they're starting to go global, which you're seeing is a trend with all of the by now Piloto companies here in Australia. [00:08:59][50.8]

Alec Renehan: [00:08:59] Yeah, and Zip's expansion strategy has been heavily focused on acquisitions. You mentioned quod pay, you mentioned pay, Fleck's part pay, which was UK based. I'm pretty sure they acquired as well a lot of these by now. Bilitis stocks are based in Australia, you know, like after have to pay, but they're expanding overseas and Zip's expansion strategy has been to supercharge that through acquisitions I guess rather than trying to naturally set up an office in a new market and expand their brand that way. [00:09:25][26.0]

Bryce Leske: [00:09:26] In terms of covid Ren, you mentioned there the impact that covid may have had with the credit cards. What do you think the impact has been for Kofod, for Zipp, positive or negative? [00:09:36][10.4]

Alec Renehan: [00:09:37] Well, I think the trend is positive in terms of changing customer preferences. And the major one is more online shopping. And obviously, you know, Zipp and after paying all of that off of their services for in-store purchases, but it feels like a digital line of credit is more natural for digital purchases. I don't know. I'm not a big retail spender, but I just feel there's an alignment there. I don't know if you being a prolific spend on retail purchases, have you used by now pay later Have you used it more this year than previous years? [00:10:07][29.9]

Bryce Leske: [00:10:07] I've used after pay once, have never used zip and I did after pay just to get an idea of what the service was like. But yeah, I'm not a big user of it. But what I found interesting is in March is the app actually fast tracked some technology to allow consumers to use their zip account for everyday spending, such as food bills, petrol, that sort of thing. So really taking it to the next level of not sort of larger purchases and shoes and the like, but your everyday bits and pieces. So I found that kind of quite interesting, which [00:10:36][28.4]

Alec Renehan: [00:10:36] is funny in a way, because I don't know the specific details of that expansion, but it feels like it's becoming less and less a credit line for a specific purchase and more and more store credit, general credit line, and then the whole conversation. And I'm not going to go down this rabbit hole, but it's like on one hand, credit cards price their risk at a 20 percent interest rate, like they say, just general lines of credit to general consumers as incredibly risky. And they need to put an incredibly high interest rate to accommodate that risk, whereas as these by now apply to stocks, move into more general credit rather than specific purchase credit, the pricing of the credit risk is just incredibly different. And, you know, there are some reasons for that. You know, they all claim that they've got much better technology to assess credit risk and they can get a much richer data sources that previously weren't available to credit card companies, all of that stuff. And I think there is some merit to that. But for me, it is an interesting one that there's been such a step change in the pricing of credit risk that they can now offer interest free credit, basically. [00:11:35][59.2]

Bryce Leske: [00:11:36] Well, that's a tough question that we can take straight to Larry Diamond. So let's mark that one, Ren. Let's move on to industry and competitors. It's a hot space at the moment. It's a new industry. There's a lot to understand. So maybe let's take a step back and look at the broader sort of context and. If you're thinking about this industry, you can't just think about the immediate buy now, pay later players. [00:11:58][21.7]

Alec Renehan: [00:11:58] Yes, yeah. Which there are a lot of and I've got a bit of a game for you in a second. Okay. But I think the broader context and the way that I like to think about competitors is substitution possibilities. So if a consumer isn't using zip pay, what are the substitution options available to them? And it's much broader than just substituting to another buy now pay later provider credit cards we've touched on just actually saving and using your cash. So like the substitution possibilities in terms of how a consumer buys something is really the competitive set that is challenging. And so you've? [00:12:34][35.8]

Bryce Leske: [00:12:35] Does Crypto fall into this? [00:12:36][1.4]

Alec Renehan: [00:12:37] No, no, no. Until I can walk. Till I can take my Crypto wallet to Amazon. And how can you? Yeah, there you go. [00:12:46][8.8]

Bryce Leske: [00:12:46] So it does maybe. [00:12:47][1.3]

Alec Renehan: [00:12:49] But you could ask Larry Diamond about that. I'm probably not going to. But yeah. So for me, when you think about its competitors, the biggest competitors are the credit card players. So the big four banks, American Express and those guys and then also all the buy now pay later players and the competition among the buy now pay later is two-sided. So they're competing for customers for you and me to use their services. But probably more importantly, they're competing for retailers to offer their services because in some ways, winning the retailers automatically means you win the customers. And the best example of that is Amazon. So Amazon partnered with Zipp, which means if you want to use by now later services through Amazon, you can't be enough to pay customer and use your off to pay account. [00:13:38][49.0]

Bryce Leske: [00:13:39] Which is interesting because a lot of retailers offer all by now of services. And so I think for them it's just a matter of get all of them on so that we're not excluding customers who may be one or the other. So I guess the question then comes down to all, you know, is it just a matter of having more retailers than the competitor? Yeah. Really? Yeah. What it's going to boil down to. [00:14:01][22.1]

Alec Renehan: [00:14:01] I mean, I'm fascinated to see how the competitive dynamics of this industry shake out, because you could see a scenario. I'm not saying it's the most likely scenario, but you could see a scenario where there are so many Binalong highlighter stocks or companies that are all competing for retailers. So the way that they compete for retailers, retailers obviously just want the most transactions. So all these by now Bilitis stocks go to the retailers and say, we will approve more customers for you, will offer you a lower percentage that you have to pay us. And so you could see a race to the bottom come out where the biggest thing is margins are squeezed because they're charging a lower percentage. But also that credit quality is reduced because retailers want more purchases because the risk doesn't sit with the retailer. Risk sits with the buy an hour later company that's giving the line of credit. And it will be an interesting industry dynamic as more and more competitors come to market and as they all compete for market share because most of them aren't profitable at the moment. Yeah, some are, but most aren't. Zipp isn't. Yeah, which will get so it feels like it's a unit economics and scale and they want to be big. [00:15:07][65.6]

Bryce Leske: [00:15:07] Yeah, I think we'll start to see a lot of verticals popping up as well. They'll start playing in different markets for this sort of stuff. [00:15:13][6.0]

Alec Renehan: [00:15:14] When I think about a market like this and think about Zipp in the context of its competitors, there's really three key questions that I would ask. Number one, how many customers can be converted from traditional credit products to buy now pilot services? Secondly, what percentage of these converts can zip capture and then thirdly can convert other by now paid later service users to zip users? They feel like the three most important questions when you're looking at how that competitive landscape is going to play out. But anyway, to answer your question, how big is the market? So in Australia there are six million by now pay later accounts in the UK by now, Piloto has a three percent market share and in the US it has one percent market share. So Australia is a bit more of a mature market. But there's big opportunity overseas. And I think the thing that was sort of rating is that in some of these less mature markets for buying our later, the adoption rate and the level of acceptance is growing quite quickly. So you would expect to see the numbers that we saw in Australia play out overseas. [00:16:20][66.0]

Bryce Leske: [00:16:22] So this is where we should probably talk about who the competitors are, but you've got a bit of a game. [00:16:26][4.0]

Alec Renehan: [00:16:27] OK, so we've got a list of all of the competitors, but I figured you can just Google a list of the major financial highlights companies. So I want to play a bit of a game where I'll throw a name out and you tell me if it's a real or fake competitor domestically. U.S., U.K., Australia. OK, we'll start easy. So after pay. [00:16:46][18.5]

Bryce Leske: [00:16:46] Yes. [00:16:46][0.0]

Alec Renehan: [00:16:47] OK, after buy. [00:16:48][1.0]

Bryce Leske: [00:16:49] No. [00:16:49][0.0]

Alec Renehan: [00:16:50] It's real. It's a real company owned by eBay. Cecil? [00:16:53][3.8]

Bryce Leske: [00:16:54] Yes. [00:16:54][0.0]

Alec Renehan: [00:16:55] Split it. [00:16:55][0.4]

Bryce Leske: [00:16:55] Yes. [00:16:55][0.0]

Alec Renehan: [00:16:56] Your pay. [00:16:56][0.3]

Bryce Leske: [00:16:57] No. [00:16:57][0.0]

Alec Renehan: [00:16:57] No, you're right. [00:16:58][0.7]

Alec Renehan: [00:16:58] Open pay. [00:16:59][0.3]

Bryce Leske: [00:16:59] Yes. [00:16:59][0.0]

Alec Renehan: [00:17:01] Klana. [00:17:01][0.0]

Bryce Leske: [00:17:01] Yes. [00:17:01][0.0]

Alec Renehan: [00:17:02] Pay your way. [00:17:02][0.7]

Bryce Leske: [00:17:03] No. [00:17:03][0.0]

Alec Renehan: [00:17:04] You're not bad. You're pretty good. Wait and pay. [00:17:07][2.6]

Bryce Leske: [00:17:07] Interesting No. [00:17:08][0.9]

Alec Renehan: [00:17:14] future pay. [00:17:14][0.5]

Bryce Leske: [00:17:15] Not. [00:17:15][0.0]

Alec Renehan: [00:17:15] It's real. [00:17:15][0.3]

Bryce Leske: [00:17:17] It's not like a before pay? [00:17:18][0.9]

Alec Renehan: [00:17:18] before pay No. Well, that's a separate thing. Pay for the number four. [00:17:23][5.2]

Bryce Leske: [00:17:25] Yeah. No. [00:17:25][0.8]

Alec Renehan: [00:17:28] Real. All right. Open pay. [00:17:28][0.7]

Bryce Leske: [00:17:29] No. [00:17:29][0.0]

Alec Renehan: [00:17:29] It's real. [00:17:30][0.2]

Alec Renehan: [00:17:31] Clear pay. [00:17:32][0.5]

Bryce Leske: [00:17:32] Not. [00:17:32][0.0]

Alec Renehan: [00:17:58] But yeah. Look, I think the long and the short of that game is there's a lot of competitors that that's not even the full list. The two big competitors that are particularly interesting to me are AFIRM, which is a ten billion dollar US company that's about to IPO and was started by like an ex PayPal executive. And PayPal itself, who are looking at the buying up, highlight a sector there that the two big guys, Visa and MasterCard, are also looking to play in that sector. So, yeah, I think some of those bigger competitors are the most interesting to me. But the list of small by now Piloto stocks or by the Elpida companies is growing by the day it feels [00:18:37][38.9]

Bryce Leske: [00:18:38] so moved to outlook future plans. It's a space that you've always had reservations for this sort of space. And I guess it's worth touching on industry trends here. And I guess the key message that you've always been sort of on your mind with this space is the anticipated regulation of the sector. [00:18:57][19.0]

Alec Renehan: [00:18:58] I mean, that would be my third biggest reservation. My, my top two are one, the pricing of credit and then to the competitive effects, which we've touched both we've both touched on. But yeah, regulation is coming, it seems. And on the whole, Zip have been pretty supported, you know, been engaging with regulators and politicians. And I mean, the Binalong highlighted regulation discussion is really all around consumer protection and assuring that, you know, consumers aren't. Getting too much credit and putting themselves in bad financial positions. [00:19:36][38.4]

Bryce Leske: [00:19:37] So in terms of the actual future plans for this is something that we'll dig into a little bit with, Larry. But I think if we're looking at the short term, it's pretty obvious that their intentions are focused on expansion for both domestically and also globally, be it through acquisitions or to continue pushing the product that they already have in the UK, USA and New Zealand. And as we sort of spoke about a few minutes ago, I wouldn't be surprised if we see entrance into new types of markets where they can apply the same sort of technology and concepts to other areas in which we are paying, you know, through bills or perhaps by now pay later for stocks or whatever may be. So I'd be interested to hear from Larry what their intentions are longer term. So we'll crack into him next episode. [00:20:24][46.9]

Alec Renehan: [00:20:25] Hopefully it's to become profitable at some point, I'm sure. [00:20:27][2.2]

Bryce Leske: [00:20:28] Sir, do you want to kick into some financials because you've just mentioned the profitability. [00:20:31][3.4]

Alec Renehan: [00:20:32] Yeah. So the big thing with a lot of these by now pay later stocks. And if we talk specifically about ZIB, it's their revenue is growing at an incredible rate. Some of the best revenue growth you'll probably see in the Australian stock market. The last few years, it's been up over 100 percent. Last year, it was up 90 percent. They've sort of gone from zero to one hundred and sixty million in, what, six, seven years? Yeah, it's been a pretty consistently strong growth rate in terms of revenue. So the first thing that you really like to say is an investor is that this company has a rapidly growing customer base and is rapidly growing, clustering topline sales. Yeah, yeah. That's the first thing. The second thing is that they're not yet profitable and they've never been profitable. They lost about 20 million dollars last year on one hundred and sixty million dollars of revenue. The year before, they lost 11 million on eighty million dollars of revenues. And a year before that, they lost about 20 million again on forty dollars million dollars worth of revenue. So the key thing you're saying there is that their revenue is growing at an incredible rate, but their costs are also growing at an incredible rate. You hope that at some point they reach economies of scale where the I mean, the term is operating leverage. But really all that means is that every incremental sale they get in terms of their revenue, much more of it flows to the bottom line because expenses aren't growing at the same amount. So that's really the beauty of a lot of these tech companies, is that because they have high fixed costs and low variable costs, once they hit that sweet spot, then they're operating leverage is huge. And you say the best example of that recently has been Microsoft, where every incremental dollar they make in revenue, about 70 per cent of it flows straight to the bottom line in terms of profit. And so the buying up highlighter sector will be hoping that they can show those characteristics are some part of me thinks that the slightly different companies, because as your customer base expands, as the amount you're learning expands, the amount of bad debt that isn't paid back expands and stuff like that as well. But a lot of their fixed costs would come in like their technology and their credit verification and stuff like that. So they would hope that at some point they can take that revenue growth, but then really turn that profit around. They have a fair bit of cash on their balance sheet, about 35 million, 34 million, and they've got about the same amount of that in short term debt. So their balance sheet seems fine. They're growing their revenue, an incredible rate. Their expenses are also growing, but obviously they're expanding rapidly. So the question really becomes, when can they hit that profit? [00:23:10][157.3]

Bryce Leske: [00:23:10] Yeah. Also worth noting with these companies is to have a look under the hood at what they call bad or doubtful debts. And this is, to your point, Ren all about the way in which they're going to be looking at, I guess, the health of the credit checks. And if that does deteriorate, then you're putting yourself in a position where you might be exposing yourself to a more bad debt. 20 20 annual report showed that bad and doubtful debts increased to fifty three point seven million, which was an increase of 17 million. Yeah, reflecting a 17 million increase in bad debts, which was written off and a fourteen point seven million increase in the provision of expected losses. So what essentially that means is they have to keep cash aside, I guess, anticipating that a small percentage of the total debts that they're paying out will be bad and they won't be able to recover. So they do need to ensure that, A, that number isn't increasing year on year, but, B, that they do also have enough cash to be able to pay that out. So something to just keep an eye on with these companies that are playing in the credit space [00:24:08][57.7]

Alec Renehan: [00:24:08] just on that. So 17 million increase, up to 57 million. So. [00:24:12][3.7]

Bryce Leske: [00:24:13] Fifty three million [00:24:13][0.5]

Alec Renehan: [00:24:14] fifty three. So their bad debt increased were a scratch under 50 percent, which was about half of what their revenue grew. So you would hope that that ratio continues, like if that bad debt is growing faster than their revenue or close to their revenue number, then you say, well, it feels like they're deteriorating their credit quality to. To increase that revenue number, but if that if the revenue continues to grow at a much faster rate than the bad debt, that's a good sign that, you know, the credit quality is there because as a percentage of the overall revenue, you would hope that bad debt isn't increasing. [00:24:45][30.7]

Bryce Leske: [00:24:45] Yeah, yeah. So I Ren to close out. It's a tough one to put a valuation on, given that it is not profitable. So you can't be doing any sort of discounted cash flow model or anything. [00:24:55][9.7]

Alec Renehan: [00:24:55] I mean you can if you want to forecast out the financials for years to come and say, I think at this point they'll be profitable and this is how much money they'll make, and then you can try and discount that future cash flow. But it's so fraught like there are so many assumptions built into that. I think the company would even struggle to to properly forecast [00:25:14][18.9]

Bryce Leske: [00:25:15] and hope that I have an idea [00:25:15][0.7]

Alec Renehan: [00:25:16] like, yeah, when are we going to be profitable? We hope we're going to be profitable in twenty, twenty three years. We might acquire another church. I think really all we can do is a bit of a I guess a relative valuation. And because we don't have earnings numbers, we can really just look at price to sales and we could look at price to book. But if we look at price to sales, so that's basically saying for every dollar of sales, how much am I paying? Yeah. And so Zip's price to sales ratio is fourteen point fifty. So for every dollar of sales you're paying fourteen point fifty. Basically, to put that in context, Cecille, which is an Australian by now, later is around almost thirty twenty nine point eight. Flexi group is lower, flexi rupiah one, which is quite low. OK, after page 54. Wow. Yeah, split it. One hundred and seventy J's. [00:26:07][50.6]

Bryce Leske: [00:26:08] Relatively speaking, it seems cheaper than a lot of its competitors. Yeah. But with all things in this space, very new industry, a lot of share price growth over the last 12, 24 months, you know that growth companies, you know, you would expect to see some of these larger price to sales numbers. I guess the question is whether or not you're prepared to pay for those numbers, which is really an indication of the expected growth over the next five years or so, which is you need a lot of growth. [00:26:40][32.6]

Alec Renehan: [00:26:41] Yeah, I mean, the irony for me is that flexi growth is the only one that's profitable. Yeah, sure. There's a lot of expectation built into these stocks. I feel Zippy's is a little less than after pay and some of these other ones. But yeah, we'll say, [00:26:55][14.0]

Bryce Leske: [00:26:55] well, Ren, that was a good stock to kick off the summer series with Super Hero and a big thank you to our Equity Mates community member, Morgan, who helped us with a lot of the research for this episode. Hats off to you. If you would like more information on superhero head to super hero.com. Today, they are offering five dollar brokerage and also free brokerage on all ETFs. We're going to be chatting to Larry Diamond in a bonus episode that will be available in your feed now for a bit of a deeper dove on Zipp, and we'll be taking some of the tougher questions. Always good to chat stocks, Ren. And looking forward to the next episode of the Equity Mates summer series. [00:27:33][37.9]

Alec Renehan: [00:27:34] Can't Wait. [00:27:34][0.0]

[1451.0]

Get the latest

Receive regular updates from our podcast teams, straight to your inbox.

Start your week the right way with five of our favourite articles from the past week. Read what the team at Equity Mates are reading and expand your knowledge of the world of finance and business.
The perfect compliment to our Get Started Investing podcast series. Every week we’ll break down one key component of the world of finance to help you get started on your investing journey. This email is perfect for beginner investors or for those that want a refresher on some key investing terms and concepts.
The world of cryptocurrencies is a fascinating part of the investing universe these days. Questions abound about the future of the currencies themselves – Bitcoin, Ethereum etc. – and the use cases of the underlying blockchain technology. For those investing in crypto or interested in learning more about this corner of the market, we’re featuring some of the most interesting content we’ve come across in this weekly email.