Zip shares jump 16% as US growth drives record A$269m cash earnings

Australian digital financial services firm Zip Co Limited (ASX: ZIP) has delivered record FY26 earnings as its United States business continues to scale. Total transaction volume increased 27.2% to A$16.65 billion, while total income rose 24.7% to approximately A$1.34 billion and cash EBTDA jumped 57.9% to A$268.9 million. Statutory net profit increased 45.7% to A$116.4 million, while operating margin expanded 420 basis points to 20%. Investors responded by pushing Zip shares as much as 16% higher to A$3.01 on August 20, but FY27 guidance sets a more demanding test because management expects another A$340 million of cash EBTDA even as US transaction growth moderates from more than 40%.

The result shows how dramatically Zip’s economics have changed from the period when rapid buy now, pay later growth was accompanied by heavy corporate losses and balance-sheet concerns. Cash EBTDA has increased from A$170.3 million in FY25 to A$268.9 million, while the company has completed A$150 million of share buybacks, carries no corporate debt and ended FY26 with A$246.5 million of available cash and liquidity. Zip has also decided to leave New Zealand, concentrating its capital and management attention on Australia and the much larger US opportunity.

The strongest evidence of the change is operating leverage. Transaction volume grew 27.2%, but cash earnings increased more than twice as quickly at 57.9%. That relationship is central to the current investment case because Zip’s FY27 guidance assumes the company can keep expanding earnings faster than transaction activity even after US growth begins normalising.

Why did Zip cash earnings grow 58% when transaction volume increased only 27%?

Zip processed A$16.65 billion of transaction volume during FY26, up 27.2%, while total income increased 24.7% to approximately A$1.34 billion. Cash EBTDA reached A$268.9 million, however, representing growth of 57.9%. The operating margin consequently expanded from about 15.8% in FY25 to 20% in FY26.

That margin expansion indicates that a larger proportion of incremental revenue is reaching earnings. Zip’s platform has significant fixed technology, product, risk-management and corporate infrastructure, meaning revenue can grow faster than operating expenditure once transaction volumes reach sufficient scale.

The US business provides the clearest example. Zip has repeatedly described the operation as highly scalable, with cash earnings growing substantially faster than revenue as customer volumes increase across the existing technology and underwriting platform. During the first half alone, US cash EBTDA increased almost 70% while transaction volume rose around 44%.

For FY26 as a whole, US transaction volume increased 42.5% in US-dollar terms and cash earnings rose 51.4%. The growth rate therefore remained exceptional, although the gap between volume and earnings growth narrowed compared with the first half.

This operating leverage is why Zip’s next growth phase is increasingly an earnings story rather than simply a transaction-volume story. Management no longer needs transaction volume to double for profit to move materially higher. It needs enough growth to keep spreading operating costs across a larger revenue base while maintaining credit and funding discipline.

Has the United States become more important than Australia to Zip’s valuation?

The answer is increasingly yes.

The US already represented approximately three-quarters of group transaction volume during the first half of FY26, when Zip processed A$6.3 billion of US transactions compared with A$8.4 billion across the group. US first-half active customers reached 4.6 million, with transaction volume increasing 44.2% in US-dollar terms and revenue increasing 46.4%.

Full-year US transaction growth remained 42.5%, while cash earnings reached approximately US$154.7 million, up 51.4%. Zip is now guiding for more than 30% US transaction-volume growth in FY27, meaning the company expects the market to remain its primary growth engine even as the comparison becomes substantially harder.

The US opportunity is attractive partly because instalment payments still represent a relatively small share of the country’s enormous payments market. Zip has also expanded beyond traditional discretionary retail categories, reporting faster customer spending growth in areas including healthcare, education, automotive and transportation. That broadening potentially increases usage frequency and reduces dependence on fashion or other discretionary categories.

Merchant expansion is supporting the strategy. Earlier in 2026, Zip said its US platform served more than 4.6 million active customers and more than 26,700 merchants, with additions including JD Sports, GOAT and Shoe Palace. The company has subsequently described a US network of more than 29,000 merchant partners.

The valuation risk follows from the same concentration. If US consumer conditions weaken sharply or credit losses rise beyond management’s target ranges, the fastest-growing part of Zip would also become the principal source of earnings pressure.

Are rising bad debts becoming the biggest risk to Zip’s US growth strategy?

Group net bad debts increased to 1.77% of transaction volume in FY26 from approximately 1.52% a year earlier, an increase of about 25 basis points. That deterioration is important because Zip is deliberately expanding transaction volume rapidly while offering credit to millions of consumers.

The number needs context. During the third quarter, group net bad debts were 1.9% of transaction volume, while US net bad debts remained around 1.86%. Management expected US losses to decline below 1.75% during the fourth quarter and continued to describe credit performance as consistent with its strategic settings.

Zip is therefore not reporting an uncontrolled deterioration in arrears. The company has been deliberately operating within a target loss range while expanding products such as Pay-in-8 and Pay-in-2, which carry different durations, average transaction values and customer-use patterns.

Still, FY27 becomes a more important credit test because management expects US transaction volume to grow by more than 30%. A rapidly expanding loan portfolio can look exceptionally profitable while customers remain employed and repayment behaviour is healthy, but the economics can change quickly if unemployment rises or household finances deteriorate.

The relevant measure is not whether bad debts remain exactly at 1.77%. The key question is whether Zip can hold cash net transaction margin within its targeted 3.8% to 4% range after allowing for credit losses, funding expenses and transaction costs. FY26 cash NTM was approximately 3.9%, meaning management is essentially asking investors to expect stable unit economics despite another year of strong US expansion.

Why does FY27 guidance imply slower growth but a potentially stronger business?

Zip expects FY27 cash EBTDA of approximately A$340 million. Compared with A$268.9 million in FY26, that implies an increase of about A$71 million, or 26.4%.

That is materially slower than FY26’s 57.9% earnings growth, but slower percentage growth is inevitable as the earnings base becomes larger. Adding A$71 million of cash EBTDA in FY27 would actually represent a larger absolute earnings increase than many earlier years when the company was growing from a much smaller base.

Management is targeting an operating margin of 20% to 22%, compared with 20% in FY26. At the upper end, that would represent another 200 basis points of margin expansion even as US transaction growth moderates toward more than 30%.

Revenue margin is expected around 8%, broadly consistent with FY26’s 8.1%, while cash net transaction margin is targeted at 3.8% to 4%. Those figures suggest management is not assuming a substantial increase in the amount Zip charges for each dollar of transaction volume. The earnings growth instead depends on scale, operating efficiency and disciplined credit performance.

That is a healthier foundation than relying entirely on higher pricing. If Zip can generate A$340 million of cash EBTDA while customer economics remain broadly stable, the result would provide further evidence that its profitability is becoming structurally embedded.

What does leaving New Zealand reveal about Zip’s capital-allocation strategy?

Zip stopped accepting new purchases in New Zealand from August 17 after deciding to withdraw from the market and focus its investment on Australia and the United States. Existing customers remain responsible for outstanding repayments while the operation is wound down. Zip has said the financial impact of the exit is expected to be immaterial to the group.

The financial impact may be small, but the strategic message is larger.

Zip is no longer trying to maximise the number of countries in which it operates. Instead, management is concentrating resources where it believes the combination of market size, customer acquisition economics and operating leverage offers the strongest returns.

That represents a significant change from the earlier BNPL expansion cycle, when Australian companies raced into international markets and acquisitions as investor capital remained abundant. Zip’s present strategy is considerably more selective.

Australia provides an established profitable base, while the US provides scale. New Zealand offered neither the same absolute size nor the same growth potential, making withdrawal consistent with a company increasingly focused on return on capital rather than geographic footprint.

The same logic is visible in Zip’s product strategy. In Australia, initiatives such as ZMobile are being positioned as capital-light extensions to the customer relationship rather than entirely new international ventures requiring substantial upfront investment.

Does A$150 million of buybacks signal Zip has moved beyond balance-sheet repair?

Zip completed A$150 million of share buybacks during FY26 and has authorised another program of up to A$50 million. The company had previously completed a A$100 million buyback in December 2025, repurchasing 34.9 million shares at an average A$2.86 each.

This is a notable capital-management shift for a company that only a few years ago was heavily focused on funding operations and repairing its balance sheet.

Zip finished FY26 with no corporate debt and approximately A$246.5 million of available cash and liquidity, up from A$137.8 million at June 2025. That balance gives management capacity to support growth while still repurchasing equity when it believes doing so offers attractive returns.

The additional A$50 million program is smaller than the FY26 buybacks and should not be interpreted as an aggressive reduction in share count. It nevertheless signals that management believes the business can finance growth from operating cash generation without preserving every dollar of excess corporate liquidity.

Capital discipline becomes increasingly important as the US business grows. Cash that could be returned through buybacks also competes with investment in technology, marketing, credit capacity and new products. The most attractive outcome is therefore not simply maximum repurchases, but an allocation framework that prioritises projects capable of producing returns above the cost of capital while returning genuine excess cash.

Could a US dual listing materially change how investors value Zip?

Zip continues to evaluate a potential United States dual listing and may seek shareholder approval for a share consolidation at its 2026 annual meeting. No completed US listing has been announced, so investors should treat the proposal as a strategic option rather than an established event.

The logic is increasingly clear as the US becomes the dominant source of transaction growth. A US listing could improve access to American investors who follow consumer-finance, payments and fintech companies and may provide a valuation benchmark more closely aligned with the geography driving Zip’s growth.

It could also increase liquidity and broaden the potential institutional shareholder base.

However, a second listing does not change the economics of the underlying business. Credit losses, transaction growth, funding costs and margins will determine long-term value regardless of where the shares trade. Additional listing and compliance requirements also carry costs.

The strongest reason for a US listing would therefore be a genuine mismatch between Zip’s growing US operating exposure and the investor base available through an ASX-only listing, rather than the assumption that an American ticker automatically produces a higher valuation.

Why did Zip shares jump as much as 16% after the FY26 result?

Zip traded as high as A$3.01 during August 20 morning trading, up roughly 16%, after closing the previous session around A$2.58. At A$2.98 earlier in the session, the company was valued at approximately A$3.7 billion.

The rally still leaves the shares materially below the A$4.93 52-week high. At A$2.98, Zip was approximately 40% below that peak but more than twice the A$1.375 annual low.

The stock was around A$2.86 on July 20, meaning A$2.98 would represent only about a 4% gain over one month despite the much larger result-day move. The comparison highlights how volatile expectations around the company have remained.

The August 20 rerating appears to reflect more than the earnings beat itself. Investors also received FY27 guidance suggesting another A$71 million of cash EBTDA growth, additional capital returns and continued US volume expansion above 30%.

Yet the stock’s remaining discount to its 52-week high suggests the market is not assuming the FY26 growth rates will persist indefinitely. Zip is moving from a turnaround valuation toward an execution valuation, where meeting increasingly ambitious earnings expectations becomes essential to sustaining further gains.

What are the key takeaways from Zip Co’s FY26 results and FY27 outlook?

• Total transaction volume increased 27.2% to A$16.65 billion, while total income rose 24.7% to approximately A$1.34 billion.
• Cash EBTDA increased 57.9% to a record A$268.9 million, materially faster than transaction and revenue growth.
• Operating margin expanded 420 basis points to 20%, demonstrating substantial operating leverage as Zip’s platform scaled.
• Statutory NPAT increased 45.7% to A$116.4 million.
• US transaction volume increased 42.5% in US-dollar terms, while US cash earnings rose 51.4% to approximately US$154.7 million.
• ANZ cash earnings increased 98.6% to A$69.5 million, showing that earnings growth was not confined to the US business.
• Net bad debts increased 25 basis points to 1.77% of TTV, making credit performance a key FY27 metric as US transaction volume continues growing rapidly.
• FY27 guidance targets A$340 million of cash EBTDA, implying approximately 26% growth, with a 20% to 22% operating margin.
• Zip completed A$150 million of buybacks in FY26 and authorised another program of up to A$50 million while maintaining no corporate debt.
• Zip shares jumped as much as 16% to A$3.01 on August 20 but remained around 40% below their 52-week high.

Can Zip sustain 20%-plus margins when US growth eventually slows?

Zip’s FY26 result materially strengthens the argument that the company’s turnaround has moved beyond cost cutting. Transaction volume increased by more than A$3.5 billion, total income rose by roughly a quarter and statutory profit reached A$116.4 million, yet cash EBTDA expanded almost 58%. That combination indicates the platform is generating genuine operating leverage as it grows.

The US remains the critical variable. More than 40% transaction growth cannot continue indefinitely as the base becomes larger, and management has already lowered the FY27 hurdle to more than 30%. What matters is whether earnings can keep compounding as that growth rate gradually normalises.

The A$340 million FY27 cash EBTDA target provides the next measurable test. Achieving it while maintaining a 20% to 22% operating margin and 3.8% to 4% cash net transaction margin would indicate that Zip can convert slower percentage volume growth into substantial absolute earnings growth.

The biggest threat is credit. Group net bad debts have already risen to 1.77% of transaction volume, and the US economy will eventually experience periods less favourable to consumer lenders. Zip’s ability to price, underwrite and manage that risk while continuing to add customers will determine whether today’s margin expansion proves structural.

Capital management provides another sign of confidence. The company has no corporate debt, has completed A$150 million of FY26 buybacks and is prepared to spend another A$50 million buying shares while continuing to fund growth.

Zip has therefore moved well beyond the question that dominated the company several years ago: whether it could become sustainably profitable at all. FY26 answered that convincingly.

The harder question for FY27 is whether a fintech platform built during a period of rapid US expansion can keep producing 20%-plus margins when growth becomes more ordinary and the credit cycle becomes less forgiving.