Highlights

• A US Fraud event cost Zip US$7.2 million (A$10.1 million) in cash operating expenses and slowed growth in July and August.

• Zip reaffirmed every FY27 guidance metric, including group cash EBTDA of A$340 million.

• US TTV grew 34.1 per cent in US dollars to US$2.57 billion in the September quarter.

• A proposed five-for-one share consolidation will go to shareholders at the 19 November 2026 AGM.

A quarter overshadowed by fraud

What changed for Zip Co Limited (ASX:ZIP) after its first-quarter update? On 23 October 2026, the buy now, pay later (BNPL) provider disclosed that an external fraud event in the United States had cost it US$7.2 million (A$10.1 million) in cash operating expenses and temporarily slowed growth in July and August. Zip reaffirmed every FY27 guidance metric, including group cash EBTDA of A$340 million, .

The episode matters because Zip's Investment case increasingly rests on its US business, which accounted for roughly three-quarters of group transaction Volume in FY26. Investors are now weighing whether the fraud was a one-off or a sign that controls have not kept pace with rapid growth.

What Zip does and how it earns money

Zip provides instalment payment products to consumers in the US and Australia. It earns Revenue from merchant fees, customer fees and, in Australia, interest-bearing products such as Zip Money and Zip Plus.

The key drivers are total transaction volume (TTV), the revenue Margin earned on that volume, funding costs and Credit losses. Zip funds receivables mainly through Warehouse facilities and securitisation, so changes in interest rates and investor appetite for asset-backed Debt flow directly into its margins.

The company is narrowing its footprint.

A record FY26 result

Zip's FY26 result, released on 20 August 2026, was its strongest to date. For the year ended 30 June 2026, the company reported:

- TTV of A$16.7 billion, with US TTV growing above 40 per cent in US dollar terms - total income of A$1,347.4 million - cash EBTDA of A$268.9 million, ahead of its guidance of at least A$260 million - statutory net profit after tax of A$116.4 million, up from A$79.9 million in FY25.

Zip said it met or exceeded all five FY26 targets. It also completed A$150 million of on-market Buybacks during the year and announced a further program of up to A$50 million for FY27.

Credit quality was the weaker point. Net Bad Debts rose to 1.77 per cent of TTV from 1.52 per cent a year earlier, and Australian engagement measures such as app downloads fell in the fourth quarter.

Inside the first-quarter numbers

The unaudited 1Q FY27 figures, for the three months to 30 September 2026, showed group TTV of A$4.6 billion and total income of A$376.1 million. US TTV rose 34.1 per cent in US dollars to US$2.57 billion.

Reported cash EBTDA was A$65.0 million, only slightly above the prior corresponding period because it absorbed the fraud costs. Excluding those costs, Zip put adjusted cash EBTDA at A$75.1 million.

Zip said coordinated individuals opened new US accounts using legitimate credentials and made transactions that were never repaid. The company said it contained the event, notified authorities and lodged an insurance claim. It reported that US TTV growth recovered to 41 per cent in US dollar terms in September.

Other metrics were softer. Net bad debts rose to 1.97 per cent of TTV, against 1.65 per cent a year earlier. Active customers were broadly flat at 6.4 million, as US growth was offset by a decline in Australia.

Chief executive Cynthia Scott said the fraud event, "and the measures we took to mitigate it, temporarily moderated TTV and new customer growth".

Leadership change and share consolidation

The quarter came alongside other corporate changes. On 16 October 2026, Zip announced that Joe Heck had resigned as chief executive of Zip US. Rory Herriman, previously US chief technology and operations officer, became president and interim chief executive of the US business.

On the same day, Zip proposed a five-for-one share consolidation, to be put to shareholders at the Annual General Meeting on 19 November 2026. The company said the change should not alter its underlying value or shareholders' proportionate interests.

The board also continues to assess a potential US dual listing. Its FY26 Annual Report says it would proceed only if this was in the best interests of all shareholders. No listing has been confirmed.

Sector conditions and competitive position

The US BNPL market is crowded. Zip competes with larger, well-funded providers such as Affirm, Klarna and Block's Afterpay, as well as card issuers offering their own instalment options. Zip has tried to stand out with its pay-in-four product, a growing pay-in-two option and bill-payment features. Management said pay-in-two made up about 3 per cent of TTV in the fourth quarter of FY26.

Zip has leaned on its Zip Plus product to support receivables growth while the wider market matures.

Funding is a competitive Factor too. On its FY26 results call, management described a move in the US from private warehouse funding towards rated asset-backed securities, which could lower funding costs over time if markets stay receptive.

Risks and what to watch

Credit losses remain the main swing factor. Zip expects US net bad debts of 1.5 to 2.0 per cent of TTV in FY27, and said it expected the December quarter to come in lower than the September quarter while remaining in the top half of that range.

Fraud and operational risk are now under closer scrutiny. Further incidents, or tighter controls that slow customer sign-ups, could weigh on growth.

A Leadership transition in the US business, the company's largest growth engine, adds execution risk. Consumer spending conditions in the US, interest rates and access to securitisation markets could also affect volumes and margins.

Upcoming milestones include the AGM vote on the share consolidation, the December quarter update, and any progress on the search for a permanent US chief executive. Investors are also likely to watch whether Zip's run-rate Earnings support its A$340 million cash EBTDA target, and whether the board takes any formal step towards a US listing.