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ZIP and Afterpay share prices both crash 20% following UBS report

The Afterpay and ZIP share prices have both fallen around 20% since the release of a bearish broker note from banking giant UBS. What happens next is anyone’s guess.

ZIP and Afterpay Source: Bloomberg

Aussie tech gets mauled

All it took was one bearish note.

UBS slapped sell recommendations on both Afterpay (ASX: APT) and ZIP (ASX: Z1P). The share prices of both fell sharply in response. (And continued to do so, for that matter.)

In other tech related news, WiseTech (ASX: WTC) – the high-growth, high-valuation Aussie tech stock saw itself become the target of a vicious short report that accused the company of inflating its organic growth figures, amongst other things.

WiseTech shares plunged 10% before being put in a trading halt. Armchair investors subsequently philosophised on the difference between a sell recommendation like UBS's and a rogue short report.

Such is the aversion to bearish thoughts in a bullish climate, I guess.

And when WiseTech exited its trading halt this morning it was also lower, before promptly being put in another trading halt after falling 12%.

ZIP and Afterpay share prices in focus

The ZIP share price in particular – which had risen over 400% since January – fell 21% in just a few days, now closer to 24%, opening out the week at around A$4.19 per share.

Afterpay mostly mirrored these moves, or led them; after peaking past the A$37 mark – it has since seen its share price drop in excess of 20%. Like ZIP, it opened lower again today, down 2% in the first half-hour of trade, to A$28.99 per share.

As we previously covered, one of the key points of UBS’s reports on ZIP, Afterpay and the buy now pay later (BNPL) sector in general, was that regulation could be coming – and it could indeed disrupt the hyper growth BNPL business models. The investment bank also worries about the actual credit-worthiness of the individuals using buy now pay later services like ZIP and Afterpay.

Indeed – regulation looms large over the BNPL sector – with the RBA of all institutions recently commenting that it would review the interplay between companies like Afterpay and merchant surcharges.

And though ZIP has fallen following this report, UBS noted that ZIP is actually less exposed to such regulatory upheaval – given that only 40% of its business portfolio income is generated from buy now pay later offerings. Afterpay’s is a more drastic 100%, for reference. Though speculation that Afterpay will expand its product offerings at some point is ever-growing, which could see this percentage reduced.

Fluid dynamics

In saying that and likewise, ZIP’s recent acquisition of SpotCap as well as its soon-to-launch ZipBiz rollout could see its own 40% BNPL portfolio income figure disrupted.

Finally, expectations around ZIP’s growth trajectory are likely lower as well, given its smaller user-base. Indeed, on a market-cap basis ZIP is significantly smaller, A$1.58bn to Afterpay’s A$7.49bn. ZIP is also not as popular as Afterpay, according to UBS. When people think of buy now pay later companies they invariably think of Afterpay.

You Afterpay it, after all; you don’t zip it.

The ZIP share price opened 4% lower today – as the UBS-inspired concerns likely continue to play out in the mind of traders, speculators and investors.

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