Key Highlights

• The update covers the three months ended 30 September 2026.

• Total transaction Volume (TTV) rose 18.0% to $4.6 billion, while total income increased 17.0% to $376.1 million.

• Cash EBTDA, a cash-based Earnings measure before tax, Depreciation and amortisation, grew 3.4% to $65.0 million.

• It cost US$7.2 million (A$10.1 million) in operating expenses.

Can a buy now, pay later group absorb a costly Fraud incident and still hold its full-year targets? Zip Co (ASX:ZIP) says it can. In its first-quarter FY27 update, released on 23 October 2026, the company reconfirmed guidance for FY27 cash EBTDA of $340 million even though a fraud event in the United States cut into the quarter's earnings.

The central development

The update covers the three months ended 30 September 2026. Total transaction volume (TTV) rose 18.0% to $4.6 billion, while total income increased 17.0% to $376.1 million. Cash EBTDA, a cash-based earnings measure before tax, depreciation and amortisation, grew 3.4% to $65.0 million.

The softer earnings growth reflects a US fraud event. Zip describes it as an external attack in which coordinated individuals opened new accounts using legitimate credentials and ran transactions they did not repay. It cost US$7.2 million (A$10.1 million) in operating expenses. Excluding that cost, Zip reports adjusted cash EBTDA of $75.1 million, up 19.5%.

That adjusted figure is a management measure, and the company describes all quarterly figures as unaudited and preliminary.

What Zip does and how it earns

Zip provides consumer Credit products, chiefly instalment-style payments at checkout and through digital wallets. It earns income from merchant fees and customer fees and interest, and profits when volumes grow faster than credit losses and funding costs.

It operates mainly in the United States and Australia, and is winding down New Zealand by the end of calendar 2026.

At the end of the quarter, Zip reported 6.4 million active customers and 96,600 merchants. Transactions rose 21.8% to 31.6 million, and the Revenue Margin held at 8.2%.

Operating performance by region

The United States is the main growth engine. US TTV grew 34.1% in US dollars and revenue rose 32.0%. Net Bad Debts in the region were 1.93% of TTV.

Zip said fraud moderated TTV and new-customer growth in July and August. It reported September TTV growth of 41% in US dollars and said momentum continued into October. Those are company statements.

Australia was steadier. Receivables grew at a double-digit rate, with a portfolio Yield of 18.9% and arrears of 2.35%. Annualised net bad debts were 3.51%.

Credit quality and margins

Group net bad debts rose to 1.97% of TTV, from 1.65% a year earlier. Cash net transaction margin slipped to 3.8% from 4.0%, and the Operating Margin was 17.3% (20.0% on Zip's adjusted basis), compared with 19.5% in the prior period.

The FY27 outlook calls for an operating margin of 20% to 22%, so reaching that range would take a clear improvement over the remaining three quarters. Zip expects second-quarter US net bad debts to be lower than in the first quarter, within a full-year range of 1.5% to 2.0% of TTV.

Guidance and recent announcements

Zip reconfirmed the following FY27 targets, which it says are subject to market conditions:

• Group cash EBTDA of $340 million, up 26% year on year.

• US TTV growth above 30% in US dollars.

• A group revenue margin of about 8%.

• Cash net transaction margin of 3.8% to 4.0%.

These are forecasts, not outcomes, and the earnings target still depends on the holiday trading season.

Zip also established a US$300 million two-year securitisation, its first US asset-backed issuance, at a fixed 5.68%.

Funding and Capital management

Zip reported total cash of $452.0 million, with $224.4 million available cash and liquidity. At September 2026, US$468.2 million of US$858.6 million in US facilities was drawn.

Funding access is central to a lender of this kind, so interest rates and credit markets affect margins as well as volumes.

On capital management, Zip is running an on-market buyback of up to $50 million over 12 months. To date it has repurchased 7.6 million shares for $15.7 million. Its employee share trust separately bought 9.7 million shares for $23.7 million.

Sector conditions and competition

Buy now, pay later is now judged on credit losses and profitability. Zip competes with Afterpay, owned by Block, Klarna and Affirm, as well as with card issuers and bank-backed instalment products.

In the United States, competition is intense and regulatory attention is a continuing feature. The fraud event is a reminder that fast, low-friction approvals can attract abuse.

On competitive position, Zip's reported US growth above 30% suggests it is still gaining ground in a large market. Whether that can continue without higher losses is the key question. Zip has notified authorities and lodged an insurance claim over the fraud event, and the outcome is not yet known.

and index status

That is a historical comparison, not a view on value.

Zip rejoined the S&P/ASX 200 in July 2024. It does not appear in the changes announced for December 2025, June 2026 or September 2026.

Risks and what to watch

Key uncertainties include:

• Credit losses: net bad debts rose in the quarter, and the second-quarter improvement the company expects is not assured.

• Fraud and controls: further incidents could affect costs and growth.

• Funding and rates: the cost and availability of securitisation funding influence margins.

• Execution on guidance: the $340 million cash EBTDA target and the 20% to 22% operating margin both require a more encouraging run-rate than the first quarter delivered.

• Regulation: consumer credit rules could change.

Upcoming developments include the launch of Zip Cash, a same-day cash Loan product, to select US customers over the holiday season. That could add revenue, but it also introduces a different credit profile to manage.

The next results, covering the holiday quarter, should show how the fraud recovery and credit trends have played out. Until then, the first quarter offers evidence of growth alongside an open question about margins.