The Zip Co Ltd (ASX: ZIP) share price closed 4.95% lower today amid rumours that a listed buy now, pay later (BNPL) company has been asking banks for extra funds.
The rumours were reported by The Australian today.
Zip has not formally responded to the article via an ASX lodgement, and there is no other news out from the company today.
Meanwhile, it’s been a crummy day for the market all round, with the S&P/ASX 300 Index (ASX: XKO) finishing 1.45% in the red on Tuesday afternoon.
Let’s look into the rumours possibly affecting the Zip share price today.
Is gossip causing the Zip share price to fall?
The Australian cites unnamed sources claiming that a listed BNPL provider “has recently been approaching banks for additional funding, which some believe could signal that further efforts could be afoot to raise equity if funding cannot be sought elsewhere”.
According to the article:
Zip has said it was part of its normal course of business to be engaged with numerous banks, regarding its securitisation and debt funding programs – and based on its path to positive earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the first half of the 2024 financial year, it did not see a need to raise more capital.
The Australian says Zip made a $241 million statutory loss in 1H FY23 with cash losses of $33 million. This left it with $78.5 million of total cash and liquidity at 31 December, according to the article.
In its 1H FY23 results presentation on 23 February, Zip stated it “remains well funded with sufficient available cash and liquidity to deliver on positive group cash EBTDA during HY24”.
In an investor presentation released the same day, Zip said it expects its “RoW cash burn to be neutralised in 2H FY23” following a strategic review of its operations.
The review led to a decision to exit 10 out of 14 international markets. This will allow Zip to focus on the core markets of Australia, New Zealand, the United States, and Canada.
Zip’s Australia business has been cash flow positive for four years.
The company said its US and New Zealand businesses delivered positive cash EBTDA in November and December 2022. They “remain on track to exit FY23 with positive cash EBTDA on a sustainable basis”.
Global asset sale to boost liquidity
As we reported recently, Zip is now undertaking a global asset sale as it exits those 10 regions.
Zip CEO Larry Diamond said he expects “significant inflows from those regional sales”.
He expects them to be completed by the end of FY23.
Diamond said:
[The asset sales will] deliver cash inflows during the second half of FY23 and neutralise the cash burn in these markets. With these proceeds and the improvements we are seeing in the core business, we have sufficient cash and liquidity to deliver on our target of group positive cash EBTDA during HY24.
According to Bloomberg, Zip is working with advisory firms to arrange the asset sales.
Zip remains one of the most shorted stocks on the ASX, with 9.3% of its capital shorted by the experts.
Other news in the BNPL space today
As my colleague James reported this morning, Zip rival Sezzle Inc (ASX: SZL) has announced it is planning to list on the NASDAQ exchange in the United States.
Sezzle said it is not seeking to raise capital by listing on the NASDAQ.
However, the company does hope the listing will expand its investor base.
