Jan 30 (Reuters) - Shares of Zip Co Ltd ZIP.AX slipped to their worst intraday session in more than 2-1/2 years on Thursday, after the Australian buy-now-pay-later company's second-quarter earnings failed to meet market expectations.

The growth of BNPL companies is being challenged by multiple factors, including higher funding costs, greater regulatory scrutiny, and intense competition from major banks and payment organisations.

Zip's pre-tax, depreciation, and amortization cash earnings (EBTDA) increased by 50.2% year-on-year, reaching A$35.3 million ($22.01 million), but fell short of analysts' expectations.

RBC Capital Markets had forecast A$40.2 million, while Citi analysts projected A$44.0 million.

Zip, Australia's largest independent BNPL company, did not provide an outlook for the reported quarter. Revenue yields in its key markets of Australia and New Zealand slipped to 10.2% from 10.5% a year earlier, surprising analysts, particularly given the launch of higher-yielding products such as ZIP Plus.

Zip also floated plans to increase marketing expenditure in the second half of the year, a move that RBC warned could impact short-term profitability.

Shares of Zip plummeted as much as 25.7% earlier in the day, marking their largest intraday percentage drop since late-July 2022. The trading volume exceeded thrice the company's 30-day average, underscoring the extent of the sell-off.

"While earnings disappointed, we believe ZIP are positioned well for the remainder of FY25 with strong momentum in the U.S., the potential for large merchant signings and the introduction of new products to drive further growth," RBC analysts noted.

Meanwhile, Zip's U.S. business continues to show strong growth, with total transaction volume increasing by 39% in the second quarter and active customers growing by 5.5% after a long period of flat or negative growth.

($1 = 1.6036 Australian dollars)

(Reporting by Roushni Nair in Bengaluru; Editing by Sherry Jacob-Phillips)

((Roushni.Nair@thomsonreuters.com;))