'Clear buy': Ausbil's Chris Smith says Zip's a structural growth winner

Shares in the buy-now-pay-later stalwart surged 20% higher at lunchtime on Friday after it revealed a strong fourth quarter of growth and topped the market's expectations around guidance for volume growth in FY 2026. 

Zip Co also said it's exploring a potential secondary listing on the tech-heavy Nasdaq Index in the US as the company's operations there generate more than 80% of divisional cash earnings amid growing interest in the business on Wall Street. 

"The momentum we see in our US business - which delivered total transaction value (TTV) and revenue growth (in USD) of 41.6% and 43.7% respectively - reflects the strength of our offering for the millions of underestimated Americans we serve, who choose Zip to manage their cashflow and everyday spending," Zip's chief executive Cynthia Scott told investors this morning. 

In this wire, we speak to Chris Smith, the deputy head of equities research at Ausbil Investment Management. 

Smith is bullish on Zip and says the market is missing the fact that it's a structural growth story as US consumers avoid credit cards and adopt the ASX player's payment methods. 

Zip revealed strong growth in the final quarter of FY 2025, and its guidance for TTV growth of more than 35% in the US in FY 2026 is materially ahead of the market's expectations. 

Smith reckons this is the start of at least a four to five-year growth story for Zip and is labelling the stock a "clear buy." 

Read on below for Smith's quick-fire question and answer session on the market's top performer today. 

Zip Co (ASX: ZIP) FY25 key results

• Total transaction value up 30.3% to $13 billion (in-line with estimates)
• Revenue up 23.5% to $1.08 billion versus $1.07 billion estimates (0.7% beat)
• EBTDA  up 116% to $170.3m vs. $160m estimates (6.4% beat)
• NPAT up 1,110% to $79.9m vs. $71.8m estimates (11.3% beat)
• Earnings per share EPS up 785.7% to 6.2 cents vs. 6.7 cents ests (7.5% miss)
• Outlook group operating margin upgraded to between 16.0% - 19.0%
• Outlook group cash EBTDA as a % of Total Transaction Value (TTV) to be greater than 1.3%

For more information and market data on Zip, please visit Market Index. 

What was the key takeaway from Zip's result in one sentence?

Cynthia Scott [the chief executive of Zip] continues to execute on a structural opportunity that could last years. 

Were there any surprises in this result that you think investors need to be aware of?

It's the fourth quarter acceleration in the core business in Australia and New Zealand. 

It's really drilling into the fourth quarter run rates, which our market isn't used to doing from a half-year reporting perspective, but if you look at the fourth quarter acceleration in the US and Australia, it's clear that guidance for FY 2026 is very conservative and that they'll continue to see upside to market expectations. 

Would you buy, hold or sell Zip off the back of this result?

Rating: BUY

A clear buy. This is a multi-year opportunity to execute against a buy now pay later market that has got 4% to 5% growth in Australia and the US. The company is so well-positioned against this opportunity. 

If you think about how they grow the business, you've got more merchants, more customers, and customers transacting more frequently. 

Average transaction value is increasing, so everything is going the right way, and its structural adoption of buy-now-pay-later, that's a generation in the US that won't use credit cards. 

So they're executing against structural growth from our perspective, the market needs to understand it's not a cyclical business, it's a structural growth company with four to five years of incredible growth ahead of it. 

Are there any risks investors need to be aware of?

There's top-down macro risk, so what's outside their control. It's really around that view you get a US recession, but [macro risk] that's an inherent part of any investment or investing.  

From what they can control, they're executing exceptionally well across every part of the business. 

From 1 to 5, where 1 is cheap and 5 is expensive, how much value are you seeing on the ASX today?

Rating: 3

3 fair value, we're seeing improving earnings expectations. So, the way we approach it, we think the market is relatively fair value in terms of the growth we see coming in the next couple of years.