Can Zip Co (ASX: ZIP) justify its 74x PE after doubling earnings in Q1 FY26?

Zip Co Limited (ASX: ZIP) has posted a 98.1% year-on-year jump in cash earnings for the first quarter of FY26, sparking renewed debate over whether its steep 74x price-to-earnings multiple is still justified. The Sydney-based digital financial services firm reported a sharp 38.7% surge in transaction volume alongside deeper U.S. engagement and improving credit economics in Australia and New Zealand (ANZ). Released on October 20, 2025, the Q1 update comes as Zip prepares for a potential Nasdaq dual listing—further elevating expectations from both institutional and retail investors betting on sustainable, profitable growth.

Shares of Zip Co rose nearly 3% intraday to AUD 4.55 following the release, extending its one-year return to over 59% and placing the fintech firm among the ASX’s top performers in the financial services category. As of this quarter, Zip’s price-to-earnings ratio stood at a lofty 74.59—reflecting rising investor expectations tied to its expansion in the U.S. market, enhanced liquidity position, and capital management through an expanded share buyback program.

Founded in 2013, Zip Co offers point-of-sale credit and digital payments across two primary regions: ANZ and the United States. The company connects millions of consumers to tens of thousands of merchants through its flexible financing products.

How did Zip Co nearly double its cash earnings in Q1 FY26 despite margin compression?

Zip’s headline metric for the quarter was its cash EBTDA of AUD 62.8 million—up from AUD 31.7 million in the prior-year period—reflecting nearly 100% earnings growth. This strong expansion was driven by total group income of AUD 321.5 million, up 32.8% year-on-year. The company processed 26 million transactions over the three months to September 30, 2025, representing a 21.9% volume increase and underscoring broad-based demand recovery across both ANZ and the U.S.

Although the revenue margin narrowed slightly to 8.2% from 8.6% a year earlier, largely due to a rising contribution from the lower-margin U.S. business, Zip still delivered robust bottom-line performance. Operating leverage was a key factor—Zip’s operating margin (cash EBTDA as a percentage of total income) improved to 19.5% from 13.1% in the year-ago quarter, pointing to a more efficient business model with stronger scalability.

Management reaffirmed that disciplined execution, improved unit economics, and a growing share of higher-quality transaction volumes continue to define the company’s profitability path.

What factors are fueling Zip Co’s rapid growth in the United States this year?

Zip’s U.S. operations continued their rapid climb in Q1 FY26, emerging as the clear driver of group performance. Revenue from the region came in at AUD 213.1 million, marking a 55.1% year-on-year increase in AUD terms. In constant currency, U.S. revenue rose 51.2%, while transaction volume surged 47.2% to USD 1.92 billion.

Active U.S. customers expanded by 12.2% over the year to 4.4 million, with sharp gains in transaction frequency and spending per customer. Zip reported that average customer spend grew 27.4% while transaction counts per user climbed 17.8%, aided by product enhancements such as Pay-in-Z, the introduction of a new “Pay-in-2” feature for lower-value items, and frictionless checkout integrations through Google Pay and Google Chrome autofill.

Importantly, Zip’s availability through Stripe in the U.S. as of August 2025 has begun to yield results, expanding its embedded finance footprint. The company’s recent campaigns with the Philadelphia Phillies and Comcast Spectacor, as well as its collaboration with the PBS program Opportunity Knocks, have further amplified consumer outreach and mobile app adoption.

A key regulatory catalyst also arrived in September 2025 when the U.S. Consumer Financial Protection Bureau officially closed its NORA inquiry into Zip. The development removes a cloud of uncertainty that had hung over the firm’s American ambitions and may support smoother progression toward its dual-listing plans.

How is Zip Co managing risk and credit quality in the ANZ region while returning to revenue growth?

In its home market of Australia and neighboring New Zealand, Zip reported modest but stable growth during the quarter. Total revenue from the ANZ region rose 2.9% year-on-year to AUD 105.4 million, while transaction volume increased by 11.1% to nearly AUD 1 billion.

The performance was backed by a strengthening credit profile. Arrears fell to 2.53%, down from 2.92% in the same quarter last year, while net bad debts improved to 3.33% from 4.18%. Zip also reported that portfolio yield rose to 19.4%, its highest in over a year. Excess spread—an important metric in consumer receivables funding—jumped to 9.4%, up 2.5 percentage points year-on-year, helped by better refinancing outcomes and tighter cost controls.

Merchant count in ANZ rose to 62,600, up 11.9% from a year earlier. Zip highlighted key partnerships with Advanced Hair in Australia and Buy Kiwi, Online Meats, and IAG-backed platforms in New Zealand. The company also deepened its support for small businesses through a new integration with Xero Invoicing, enabling flexible payments via Stripe—a move that could increase invoice settlement velocity across its SME base.

What does Zip Co’s capital position and buyback program indicate about future strategy?

As of September 30, 2025, Zip Co held AUD 451.5 million in total cash and AUD 212 million in available liquidity—up significantly from AUD 137.8 million at the end of June. These liquidity levels are viewed by analysts as strong for a mid-cap fintech and position the company well for peak holiday season transaction volumes in both operating regions.

Zip also announced a substantial expansion of its on-market buyback program, increasing its limit from AUD 50 million to AUD 100 million. As of early October, the company had already repurchased 17.8 million shares for a total outlay of AUD 43.4 million. Institutional investors interpreted this move as a signal of management confidence in Zip’s long-term value trajectory and cash-generating potential.

On the funding side, Zip AU successfully issued a new AUD 300 million bond in July 2025 at a margin of 1.79%, down from the 2.13% margin priced in its previous ABS deal. Meanwhile, Zip U.S. advanced its funding profile by securing improved short-term financing with a third-party bank, building reserve capacity ahead of the critical Q2 holiday season.

Is Zip Co stock still attractive to institutional investors after its 60% rally in 12 months?

Investor sentiment around Zip Co remains bullish, particularly after a series of consistent earnings beats and growing confidence in the U.S. market. The stock is currently ranked 111 out of 2,295 on the ASX and 33 out of 700 in the financial services sector. Analysts believe that the strong 1Q26 print, combined with continued growth and liquidity discipline, has broadened Zip’s institutional appeal.

However, with a forward PE exceeding 74, the valuation implies that Zip will need to maintain its growth momentum, particularly in the United States, to justify current multiples. The success of its Pay-in-Z rollout, merchant acquisition in embedded finance, and execution of a potential Nasdaq dual listing will likely determine whether Zip continues to outperform.

The company has reiterated that a U.S. dual listing remains under active consideration, though it will be contingent on regulatory approvals and board sign-off. Market watchers expect further clarity at Zip’s 1H26 earnings report.

What guidance has Zip Co provided for FY26 and what are the key milestones ahead?

Zip has upgraded its U.S. TTV growth guidance to exceed 40% in constant currency terms for the full year FY26, up from its previous forecast of greater than 35%. All other guidance metrics were reaffirmed, with the next detailed update expected in its half-year results.

Key milestones in the months ahead will include the continuation of share repurchases, holiday season performance, uptake of Zip’s newest payment products, and any announcements related to U.S. listing plans. Analysts will also monitor further integrations within Stripe and Google Pay ecosystems, along with Zip’s ability to defend or expand margins in a competitive digital lending environment.

With momentum now visible across both its major geographies, Zip Co enters the next phase of FY26 with institutional tailwinds, strategic flexibility, and growing shareholder attention.

What are the most important insights for investors from Zip Co’s Q1 FY26 results and future guidance?

• Zip Co reported cash EBTDA of AUD 62.8 million in Q1 FY26, nearly doubling from the previous year, with operating margin improving to 19.5% from 13.1%.
• Total transaction volume reached AUD 3.9 billion, up 38.7% year-on-year, driven by continued growth in both U.S. and ANZ markets.
• U.S. revenue surged 51.2% in constant currency terms, with active customer growth of 12.2% and higher transaction value and frequency per user.
• Zip expanded its Pay-in-Z platform in the U.S. and launched Pay-in-2, while enhancing embedded finance through Google Pay, Chrome autofill, and Stripe integrations.
• In ANZ, revenue returned to growth at 2.9% YoY, with portfolio yield rising to 19.4% and arrears improving to 2.53%, signaling credit quality recovery.
• The on-market buyback limit was doubled to AUD 100 million, with AUD 43.4 million already deployed to repurchase 17.8 million shares.
• Cash reserves stood at AUD 451.5 million, with AUD 212 million available in liquidity after improved refinancing and bond issuance outcomes.
• Zip upgraded its FY26 U.S. TTV growth forecast to over 40%, while reaffirming its broader strategic targets set in August 2025.
• A dual listing on the Nasdaq remains under active consideration, pending regulatory processes and board approval.
• Zip Co shares have returned nearly 60% over the past 12 months, with analysts maintaining a “Strong Buy” outlook despite elevated valuation multiples.