Zip Co Shares Surge 18% as Buy Now, Pay Later Firm Posts Record FY26 Profit and Raises FY27 Outlook

SYDNEY — Shares in Zip Co Ltd surged 18.22%, or 47 cents, to $3.05 Thursday, as the buy now, pay later lender delivered record full-year cash earnings and issued upgraded profit guidance for the coming financial year, capping off a dramatic single-session rally that saw the stock touch as high as $3.01 earlier in the trading day.

Zip reported fiscal 2026 revenue of $1.336 billion, up 24.7% from the prior year, alongside a 45.7% increase in statutory net profit after tax to $116.4 million. The company's preferred profitability measure, cash earnings before tax, depreciation and amortization, rose 57.9% to a record $268.9 million, comfortably exceeding the company's own prior guidance of at least $260 million. Total transaction volume across the platform reached $16.7 billion for the year, up 27.2%, with operating margin expanding by 420 basis points to a milestone 20.0%.

The company's U.S. business remained the primary driver of growth. U.S. total transaction volume rose 42.5% in U.S. dollar terms, translating to 35.6% growth in Australian dollar terms to $12.7 billion, while U.S. revenue climbed 35.6% in Australian dollar terms to $903.1 million. U.S. active customers grew 9.3% to 4.65 million during the year. By contrast, Zip's Australia and New Zealand segment showed a more mixed picture: while cash earnings in the region roughly doubled to $69.5 million and Australian receivables grew 9.4%, active customers in that segment fell 8.0% to 1.88 million, even as customer spending per user rose 15.4% and transactions per customer increased 16.7%. The company also added 5,800 merchants in targeted Australian categories during the year, and confirmed in July it had begun winding down its New Zealand operations to sharpen its investment focus on the core Australian market.

Zip's total active customer base across all markets climbed 3.7% to 6.52 million by the end of June, with 97,400 merchants now on the platform.

Looking ahead, Zip issued fiscal 2027 cash EBTDA guidance of $340 million, implying growth of approximately 26% from the FY26 result. The company said it expects U.S. transaction volume to grow by more than 30% in U.S. dollar terms during the coming year, with July 2026 already tracking above that threshold, even as the comparison base against which that growth will be measured continues to expand. Zip guided to a group operating margin of between 20% and 22% for fiscal 2027, representing further expansion from the 20% achieved in the just-completed year, while its revenue margin is expected to hold at approximately 8% of total transaction volume and its cash net transaction margin is expected to remain in a range of 3.8% to 4.0%.

Zip's three strategic priorities for the coming year, according to the company's investor presentation, center on driving continued performance from its core Pay-in-4 product, developing new offerings aimed at meeting customers' short-term cash flow management needs, and accelerating investment in capability, including artificial intelligence, to support a broader multi-product platform.

Credit performance showed some modest deterioration alongside the strong growth. Group net bad debts as a percentage of total transaction volume rose to 1.77% in FY26 from 1.52% in the prior year, though the company noted its U.S. net bad debts of 1.7% of transaction volume remained within its stated target range of 1.5% to 2.0%.

Zip also strengthened its balance sheet and capital return program during the year. The company completed $150 million in on-market share buybacks during fiscal 2026 and authorized a further program of up to $50 million for fiscal 2027, alongside up to $37.5 million in additional on-market purchases for its employee share trust. Available cash and liquidity rose to $246.5 million from $137.8 million a year earlier, following new note issuances and expanded warehouse funding facilities. Zip also disclosed it is considering a potential dual listing in the United States to broaden its investor base, and said it may seek shareholder approval for a share consolidation at this year's annual general meeting.

Analyst sentiment toward Zip remains broadly bullish. According to data compiled by StockAnalysis using S&P Global and TipRanks figures, 12 analysts currently rate Zip a Strong Buy or Buy, split between eight Strong Buy and four Buy ratings with no Hold or Sell recommendations, and an average price target of $4.06, implying substantial potential upside from pre-results trading levels, though that consensus target predates Thursday's earnings release and is likely to be revised as analysts digest the new figures.

Some market commentary has flagged that while Thursday's results comfortably cleared Zip's prior earnings bar, the company's own forward guidance implies a meaningfully slower pace of growth than it has delivered in recent years. According to one analysis, cash EBTDA growth is guided to decelerate by roughly 32 percentage points from the pace achieved in FY26, while U.S. transaction volume growth is expected to ease from 42.5% to a still-solid but comparatively slower rate of more than 30%. That deceleration, the analysis suggested, may ultimately matter more to how the market prices the stock going forward than Thursday's headline earnings beat, since Zip is increasingly being evaluated on its ability to execute against a larger and more mature earnings base rather than on a turnaround or recovery narrative.

Despite Thursday's sharp rally, Zip's share price had underperformed the broader S&P/ASX 200 index over the preceding 12 months, having declined roughly 15% during that period even as the company's underlying profitability improved substantially, according to The Motley Fool Australia. Thursday's surge represents a significant reversal of that recent underperformance, at least for a single session, as investors responded to a results package that combined record current-year profitability with a credible, if more measured, growth outlook for the year ahead.

Pitcher Partners chief investment officer Cameron Curko, discussing broader trends across the current Australian reporting season with Proactive Investors, noted a divergence between consumer-facing stocks, which have generally faced pressure from higher interest rates and softer discretionary spending, and resources and energy companies, which have continued to show relative resilience. Zip's strong results and share price reaction Thursday stood out as a notable exception to that broader consumer-sector softness, reflecting the company's continued transition from a growth-at-any-cost fintech model toward a more disciplined, profitability-focused strategy that management has pursued over the past several years.