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March 30 (Reuters) – Australian buy-now-pay-later (BNPL) firm Zip Co Ltd (ZIP.AX) said on Thursday it will divest its businesses in Central and Eastern Europe and South Africa, and was on track to shut down its operations in the Middle East.
Zip said in a statement that it aims to increase focus on its core businesses in Australia, New Zealand and the United States, and hopes to help reduce cash burn from the rest of its global operations by the end of 2023.
Shares of Zip rose as much as nearly 14% to A$0.615 in early trade, hitting their highest level in seven weeks.
“While we continue to see increased demand globally for our products from both customers and merchants, we made the decision to allocate resources to areas of our business that are either profitable or have a near and clear path to profitability,” said Zip CEO Larry Diamond.
Australia’s No. 2 BNPL firm expects the reorganisation measures to help yield a net cash inflow of A$20 million ($13.36 million) during the second half of 2023.
The company, which saw its stock soar during a COVID-19 online shopping frenzy, has lost its appeal almost entirely lately. In the past year, it has botched a takeover of U.S. rival Sezzle Inc , exited operations in Singapore and stopping business lending.
The BNPL sector has also seen its valuations collapse as reduced customer spending and rising interest rates have squeezed margins and pushed funding costs higher for companies.
BNPL operators have also been under regulatory scrutiny after a proposal to regulate the sector with the same law that covers credit card and mortgage providers, further hampering the sector’s attractiveness.
($1 = 1.4966 Australian dollars)
Reporting by Navya Mittal in Bengaluru; Editing by Shilpi Majumdar and Sherry Jacob-Phillips
Our Standards: The Thomson Reuters Trust Principles.
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