Shares of Zip Co Limited (ASX:ZIP) closed up 18.2% at A$3.05 on Thursday, adding approximately A$586 million to its market capitalization in a single session. The surge followed the release of the buy-now-pay-later provider's annual results, which exceeded its recently revised guidance and prompted a fresh share buyback announcement.
The market's enthusiastic response underscores a pivotal moment for the company as it transitions from a period of aggressive expansion to one focused on sustainable profitability. While the FY26 figures were undeniably strong, the forward-looking guidance for FY27 suggests a deliberate deceleration in growth, a trade-off investors appear willing to accept in exchange for improved credit quality and operating discipline.
Record FY26 Performance
For the fiscal year ended June 30, 2026, Zip reported total transaction volume (TTV) of A$16.7 billion, a 27.2% increase year-over-year. Group revenue climbed 24.7% to A$1.336 billion, while cash EBITDA surged 57.9% to A$268.9 million. The operating margin expanded by 420 basis points to 20.0%, reflecting strong cost control as expenses grew at a slower pace than revenue. Statutory net profit reached A$116.4 million, up 45.7% from the prior year.
Group CEO Cynthia Scott attributed the results to "steady execution" that has laid the groundwork for Zip's next growth phase. She highlighted improved engagement levels, increased operating leverage, and the return of A$150 million to shareholders via buybacks during FY26.
FY27 Guidance: Slower Growth, Higher Credit Costs
Looking ahead, Zip guided FY27 cash EBITDA to A$340 million, implying 26% growth from the FY26 base. However, the company also projected US TTV growth of greater than 30%, a slowdown from the 42.5% growth achieved in FY26. Revenue margin is expected to remain around 8%, while the cash net transaction margin is targeted at 3.8%–4.0%. Operating margin guidance is set at 20%–22%, suggesting potential expansion of up to 200 basis points.
The market's reaction—valuing the A$71.1 million increase in FY27 EBITDA at approximately 8.2 times—signals confidence in the sustainability of Zip's operating leverage. Yet, the company acknowledged that net bad debts rose to 1.77% of transaction volume, up 25 basis points from 1.52% in FY26. This increase was primarily attributed to the faster-growing US segment, which now accounts for a larger share of total volume.
US Growth Remains the Engine
The US business continues to be the primary growth driver. In US dollars, transaction volume surged 42.5%, and revenue increased 44.3%. Active customers grew 9.3%, while spending per customer rose 30.5%. Notably, US customers made 23.1% more transactions, and in-store transactions jumped 67%, representing 27% of total US transaction value. Encouragingly, over 98% of transaction volume was fully repaid.
Buyback and Analyst Sentiment
Zip announced a new share buyback program of up to A$50 million. At Thursday's closing price, this could repurchase roughly 16.4 million shares, or 1.3% of the total shares outstanding. The actual number will depend on market conditions and capital requirements.
Analysts remain bullish, with all 12 surveyed by S&P Global maintaining buy ratings and no holds or sells. The average price target stands at A$4.16, implying 36.4% upside from Thursday's close. Notable targets include Citi's Siraj Ahmed at A$3.55, RBC's Julian Mulcahy at A$4.40, UBS's Lucy Huang at A$4.10, and B. Riley's Hal Goetsch at A$4.70.
Market Context and Risks
Zip's shares have climbed 9.3% over the past week, with Thursday accounting for the entire gain, while the broader Australian market edged up only 0.2% on the day. No further results are scheduled for next week, so investor attention will turn to target revisions and updates on credit losses. Employee-plan share acquisitions are expected to begin around August 31, with the new buyback likely to follow.
Key risks include accelerated US growth potentially leading to higher credit losses, increased funding costs squeezing transaction margins, and weaker consumer demand or regulatory changes that could undermine the FY27 operating leverage outlook.
