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Zip share price outlook: Why one key broker remains bullish

We examine recent stock moves in the BNPL sector as well as look at why Ord Minnett analysts have an Accumulate rating on the stock.

BNPL stocks remain off highs, Zip share price down 20%

The Buy Now Pay Later (BNPL) sector has faced immense selling pressure over the last month – as investors fret over competitive concerns and global tech stocks experienced elevated levels of volatility following a monumental run-up between March and September.

Illustrating this point, between 24 August to 24 September:

  • Zip fell 20.40%
  • Afterpay dropped 10.38%
  • Sezzle crashed 25.89%
  • Openpay declined 33.49%

More broadly, over the last month the Nasdaq 100 index – which acts as a barometer of tech sector sentiment – has fallen some 7.041%, to last trade just below the 10,900 point level.

Beyond those broader issues – competitive concerns, by way of PayPal’s recent announcement that it would be entering the installments space through its Pay in 4 product – has also likely contributed to uncertainty within the sector.

Zip’s QuadPay acquisition revisited

Despite recent share price weakness, Zip has continued to execute on its growth plans, in early September announcing it had finalised the QuadPay acquisition as well as a $200 million capital raise.

As part of the acquisition, Zip issued some 118 million ordinary shares to QuadPay stockholders while also granting ~10 million in options.

Commenting on the QuadPay acquisition, Zip’s Co-Founder and Chief Executive Officer, Larry Diamond said:

'The US is a critical part of our global strategy as merchants increasingly demand global payment solutions. The QuadPay business has continued to deliver strong results, driven by the flight to online and a move away from the outdated and unfair credit card.'

As part of that September update, Zip also revealed it had successfully raised $200 million through the issuance of convertible notes and warrants in association with CVI investments – leaving the company well positioned to capitalise on future growth opportunities.

Positively, analysts from Ord Minnett, said they were encouraged by the Quadpay numbers Zip reported in August – with the company reporting strong volume and customer growth.

Overall, in August, Zip reported that QuadPay saw its transaction volumes hit US$70 million, representing an increase of 600% YoY; while also noting that QuadPay’s user-base had reached 2 million in that month.

With the company now well capitalised following the $200 million convertibles raise, analysts from Ord Minnett said:

‘The business has resumed its growth trajectory, seeing it well placed to deliver robust outcomes leading into the key retail period of Black Friday / Cyber Monday and the lead up to Christmas.’

In step with that, the broker also raised its earnings (EBITDA) and profits (NPAT) forecasts, leading the broker to reiterate its Accumulate rating as well as bump up their price target on Zip from $6.45 per share to $6.70 per share.

Zip opened at $6.00 per share on Friday, 25 September – somewhat below Ord’s price target.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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