Zip Co co-founder Peter Gray has argued the buy now, pay later (BNPL) company can be resilient if the United States goes into recession, even as the market continues to worry about how quickly the embattled fintech is burning through cash.

In a quarterly update on Tuesday, Zip said its key US business had made a profit by the company’s preferred measure in late 2022, amid strong revenue growth and a slide in its bad debts.

Analysts said the improvement in the US was welcome for the company’s hopes of moving into profitability. But they also highlighted a decline in Zip’s available cash and liquidity, which must support the company until it is profitable. Zip shares tumbled 16 per cent to 70c, reversing sharp gains from earlier in the week.

Amid market worries about the potential for a US recession, Gray argued the turnaround in its bad loans showed the flexibility of Zip’s model, after it cut back on higher-risk lending last year. Gray maintained Zip could be resilient to weaker economic conditions, including a potential recession, as it seeks to compete with credit cards as a payment method.

“I think arguably, the US is very close to that scenario [recession] now, and the results that we’re delivering prove the strength and resilience of the model. I think we’re really well-placed, I look forward to continued sustainable growth and profit over the next six to nine months, and we’ll demonstrate the power of Zip and the power of the model through an economic downturn,” Gray said.

“Zip should be recession-proof.”

Zip, the second-biggest local BNPL business behind Afterpay, faced intense in pressure in 2022 as its share price collapsed by up to 95 per cent from its peak, amid a wider plunge in valuations of loss-making technology businesses.

The company, which provides short-term consumer loans, responded by slashing costs, closing overseas businesses, tightening lending, and setting out a plan to move into profitability in the first half of 2024.

On Tuesday, Zip argued it was making progress, posting a 12 per cent annual rise in revenue to $188 million, and sharply lower bad debts in the US, a critical market.