The share market can throw up some surprises each day.
One example is what happened with buy now, pay later provider Zip Co Ltd (ASX: ZIP) on Thursday.
In the morning the company revealed its 2022 financial year results. Zip sheepishly reported loss from ordinary activities after income tax of $1.1 billion.
Not only was this loss 63% higher than last year, but at the start of trade on Thursday the market capitalisation of the entire business was only $667 million.
That means, in just one year, Zip managed to lose 165% of its market cap.
Imagine if Apple Inc (NASDAQ: AAPL) reported that it just made a $6.4 trillion loss in 12 months. Would you be horrified?
Yet as I write this, the Zip share price is up 2.06%.
How bizarre.
I’ve changed, baby, I promise
One explanation for investors’ enthusiasm is the rhetoric coming from the company about adapting to changed market conditions.
Zip chief executive Larry Diamond has acknowledged multiple times in recent weeks how the tide has turned against loss-making growth companies. In response, his team is accelerating the business’ journey towards positive cash flow.
That same message was repeated on Thursday.
“We changed strategy and shifted to delivering sustainable growth, right-sizing our global cost base and accelerating the path to profitability,” he said.
“To that end, I want to share that we have already delivered on a number of initiatives to reduce cash burn, manage credit losses and improve unit economics.”
One of the big reforms is withdrawing out of unprofitable markets and focusing on the core Australian and US businesses.
In fact, the $1.1 billion loss included $821 million worth of impairment, with much of that the goodwill for closed offshore operations and acquisitions.
According to Diamond, closing the UK business would go a long way to stemming the cash bleed.
He has also promised to weed out bad credit throughout the business.
Can’t get any worse?
To be honest, Diamond doesn’t have much choice but to signal a strategic pivot. The Zip share price has plummeted in recent times.
The stock is down 77% year-to-date. It’s an eye-watering 92% loss if you go back 18 months.
Perhaps investors have backed the BNPL provider on Thursday with the attitude that it can’t get any worse.
“Our ability to pivot and adapt to the new world, showcases the resilience and viability of our business model as we focus on the opportunity ahead in FY23,” Diamond said.
