Shares of buy-now-pay-later provider Zip Co Ltd (ASX:ZIP) suffered a dramatic sell-off on Thursday, plummeting 34.4% to close at A$1.85. The sharp decline came after the company released its half-year financial results and signaled that profit growth would likely remain stagnant for the remainder of the fiscal year, a outlook that jarred a market anticipating clearer signs of a turnaround.
The steep drop stood in stark contrast to the broader market, where the S&P/ASX 200 index advanced 0.88%. The reaction underscores the heightened sensitivity surrounding Zip, which has been viewed as a recovery story where investors exhibit little tolerance for any deviation from expected progress. The stock briefly touched an intraday low of A$1.743, marking its weakest point since early May 2025 and representing its most severe single-day percentage loss since mid-November 2014.
Financial Results and Market Miss
For the six months ended December 31, 2025, Zip reported cash earnings before tax, depreciation, and amortization (EBTDA) of A$124.3 million. This figure fell short of the Visible Alpha consensus estimate of A$128.4 million. The company's total transaction volume (TTV) reached A$8.4 billion for the period. Its operating margin improved to 18.7%, while net bad debts were contained at 1.7% of TTV. The platform reported a customer base of 6.6 million and 90.6 thousand active merchants.
Analysts at Citi noted that Zip's implied guidance suggests full-year cash operating earnings of approximately A$248 million, which is below the Visible Alpha forecast of A$260.6 million. This guidance gap was the primary catalyst for the severe market repricing. The current Australian reporting season has been characterized by swift punishment for companies that miss expectations or provide cautious outlooks, and Zip found itself squarely in that category.
Competitive and Credit Risks in Focus
Attention now turns to how brokerage firms will adjust their financial models in response to the updated forecasts. A key question is whether Zip's achievement of raised margin targets can sustain a bullish investment thesis despite the softer overall profit outlook. Credit risk remains a paramount concern for BNPL lenders. The sector is vulnerable to rapid deteriorations in bad debt metrics should consumer spending patterns shift or if underwriting standards need tightening.
There is a fundamental risk that if funding costs rise or credit losses increase more than anticipated, Zip's narrative of expanding margins could quickly unravel. The market has repeatedly demonstrated its willingness to rapidly revalue BNPL stocks when such headwinds emerge. Furthermore, competition is intensifying, particularly in the critical United States market. Zip faces well-capitalized rivals there, including Block's Afterpay and Affirm, leaving merchants with no shortage of installment payment options.
Management's Strategic Focus
Zip CEO Cynthia Scott emphasized the company's continued focus on "increasing profitability at scale," pointing to growth initiatives in the U.S. and an expanding product suite. Notably, the company's Pay-in-2 product is being rolled out to all U.S. customers this month. Zip has also secured several high-profile merchant partnerships recently, including with Temu, JD Sports, and GOAT Group. Since August, the company has onboarded over 1,400 merchants through its integration with Stripe.
Regarding a potential U.S. dual listing, Scott stated that a confidential draft registration statement was filed with the U.S. Securities and Exchange Commission in November. She clarified that such a listing would only be pursued if it is determined to be in the best interests of shareholders. The company's next major operational update is scheduled for April 17, with its third-quarter trading statement.
The dramatic share price movement highlights the precarious position of BNPL firms as they navigate the path to sustainable profitability. Investors are demanding not just growth, but predictable and improving earnings. Zip's flat profit forecast for the second half, set against a backdrop of fierce competition and economic uncertainty, has tested the market's confidence, setting the stage for a period of heightened scrutiny as the company approaches its next milestone in April.
