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Zip share price surges as rumours run wild

We examine the rumours likely driving the buy now pay later company’s stock higher on Thursday.

The Zip (ASX: Z1P) share price surged on Thursday as rumours emerged that Klarna was building a stake in the company.

Mind you, while the stock skyrocketed at the start of Thursday’s session, opening some 15% higher, it dipped in the coming hours, before, somewhat surprisingly, rallying again.

At the time of writing Zip was up 12.31% to $8.67 per share, taking the stock’s gains since January 1 to 55%.

Speculation in focus

This is the second time this week that speculation from the much respected Australian Financial Review (AFR) has seemingly had the impact of kicking up a company’s share price.

The first was with Myer (ASX: MYR), with the stock surging after the newspaper revealed that Solomon Lew’s Premier Investments was hoovering up stock in the iconic retailer. We discuss those developments in more depth here.

Zip – a fast-growing buy now pay later company is the latest company to ‘benefit’ from the paper’s speculation. This morning the AFR published an article titled Zip Co in cross hairs of a strategic investor. Here it was noted that:

‘Street Talk understands the strategic investor has nabbed about a 4 per cent stake, in a move designed to give it options should the buy now, pay later sector consolidate down to two or three main players globally.’

If the AFR is correct in noting that Klarna has built a 4% stake in Zip, due to reporting requirements, the company would not be required to disclose such a position. Indeed, as the AFR elaborates:

‘The stealth Zip stake in understood to have been built up in recent months, and sees the investor sitting below the 5 per cent substantial shareholder level that would prompt disclosure.’

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What is Klarna?

Klarna, for those unaware, is one of the largest buy now pay later companies in the world, carrying a valuation of AUD$58 billion as part of its latest funding round.

Klarna, unlike Afterpay (ASX: APT) and Zip (ASX: Z1P) however, remains a private enterprise. Despite that, the company rather helpfully, periodically releases its financial performance data.

These releases have given us good insights into the business and well explains Klarna’s astronomical valuation and leading place in the BNPL industry.

During the first quarter of fiscal 2021, Klarna processed some USD$18.9 billion worth of transactions, had more than 90 million global active users and reported USD$360 million in quarterly revenue.

At the time of writing, other key ASX-listed BNPL companies Sezzle and Afterpay were also trading higher, while the ASX 200 benchmark was flat.

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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