Stock of the day: Zip

(AI video summary)

This video was created on 11 June 2025 for IG audiences by ausbiz.

ASX code: ZIP

Zip upgrades full-year guidance on strong US performance

Zip, the Australian fintech company, has upgraded its full-year 2025 cash earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance to $160 million, compared to the previously forecast $153 million. The buy-now-pay-later provider attributed the upgrade to strong performance in the US market and transaction volume growth across both its Australian and US operations.

The company's shares surged almost 15% to $2.69 following the announcement, marking another significant milestone for the fintech that has seen substantial gains since its earlier lows. This represents the second guidance upgrade since Zip's recent results, demonstrating the company's improving operational performance.

Valuation remains attractive despite recent gains

Despite the strong performance, Zip continues to trade at attractive valuations compared to its competitors. The company is trading at approximately half the price-to-earnings (P/E) ratio and cash EBITDA multiple of competitors such as Affirm and Sezzle. This valuation discount exists despite Zip's improving financial metrics and market position.

Analysts have maintained their consensus target price of $3.00 for Zip shares, suggesting further upside potential from current levels. The company has also benefited from decreasing short interest, indicating reduced bearish sentiment among investors.

Regulatory changes benefit established players

Recent regulatory changes in the buy-now-pay-later space are expected to benefit established players like Zip. New rules require providers to conduct enhanced credit assessments, treating them more like traditional credit providers. Importantly, these regulations apply only to new accounts, not existing customers.

This development favours incumbent operators who already have robust compliance frameworks in place. Zip had implemented comprehensive due diligence processes well before they became mandatory, positioning the company advantageously as newer entrants face higher compliance costs and operational complexity.

Investment outlook and market positioning

The regulatory environment is expected to create barriers for new competitors while strengthening the market position of established players. Zip's extensive customer base in Australia, combined with its growing US operations, provides a solid foundation for continued growth.

Management and board members have been purchasing shares over the past twelve months, indicating confidence in the company's strategic direction. This insider buying activity, combined with improving financial performance and favourable regulatory developments, supports the positive investment thesis for Zip shares.

For traders and investors considering exposure to the fintech sector, Zip presents an opportunity to benefit from the continued growth of buy-now-pay-later services while trading at a discount to international peers.