(Asx: Z1P) | Zip Co – Updated analysis

Sep 30, 2021

Sentiment: Sideways

Type of Trade: Speculative

Industry: BNPL

Sector: Financials, Information Technology

Zip is a diversified finance provider, offering consumers finance via a line of credit (via Zip Pay and Zip Money) and installment-based finance (via QuadPay and PayFlex); as well as lending to small to midsize enterprise (via Zip Business), Zip fortunes are largely tied to the nascent buy now, pay later, or BNPL, industry.

Most of its products-Zip Pay, QuadPay; and PayFlex-do not charge interest based on outstanding balances. Around 60%-70% of Zip Pay’s/Zip Money’s revenue is derived from customers, mainly via account fees and interest.

Meanwhile, its installments business like QuadPay primarily generate revenue by receiving a margin from merchants, which compensates it for accepting all non payment risk and for encouraging consumers to transact more frequently.

This analysis will focus on the Key Growth Drivers moving forwards 2022 , if you want to know more about the company in 2020 and 2021 and current finances, use the link below to read previews analysis. (CLICK HERE)

Company Latest Strategic Moves

Zip made a number of acquisitions and investments during the financial year in order to deliver its global expansion strategy.

  • 31 August 2021 the company has increased its ownership interest in QuadPay Inc. (QuadPay) to 100%
  • December 2020, Zip invested $3.1 million to acquire a 20% interest in Spotii – a leading tech payments platform operating in the Middle East. (as an associate).
  • April 2021, Zip invested $3.2 million to acquire 25% interest in TendoPay – a start-up providing instalment payment option for e-commerce customers in Philippines. (as an associate).
  • July 2020, Zip invested $0.14 million in Payflex, increasing interest from 25% to 26.2%.
  • October 2020 Zip acquired Sydney based technology company Urge Holdings Pty. Urge helps shoppers find what they are looking for, driving increased sales, reach and exposure for its retails partner.
  • August 2021, Zip has announced a capital raising with the intention to Purchase of the remaining shares in Payflex that Zip does not already own for R103.4 million (~$9.5 million) (Upfront Consideration), payable in new fully paid ordinary shares in Zip, subject to a maximum issuance of 1,477,686 shares.
  • Zip is currently operating across 12 markets.
  • (new) 22 September 2021, Zip enters in Indian Market with Zest Money Deal. Deal will cost the company $50 million to acquire a minority interest in Zest Money.
  • (new) September 2021, Zip announces Crypto offering to turbocharge growth in US in the first quarter of next year.
  • (new) 30 September 2021, company raises AUD 22,7 million across share dilution as the firm proposed issue of securities. Although share dilution is negative for current shareholders and the company continue to use the same means to rise capital, on the long run should have positive consequence if use to finance growth. Generally, shareholders are benefit for dividends once the company reaches its maturity. (we are not stating that this is the case for Zip, but as it will most likely be taken over by another company some time in the future).
  • (new) 30 September 2021, company also announced that it has entered into an agreement with Microsoft to integrate its technology into the shopping experiences within Microsoft Edge, beginning with the US market. Btw, there are more than 1.3bn devices running Windows 10.

Growth Prospect

The company strategy to growth is all about market expansion and customer engagement, aiming to be N1 fintech brand in the world, delivering unique experience, customer optimised product site and personalisation. To delivery growth the company aims to keep exploiting the following key growth drivers:

  • Deliver more value to merchants
  • Demand generation
  • Global market integration
  • Zip business acceleration
  • Uplift the knowledge, capability and diversity of the so called Zipster.
  • Organic Growth in new markets
  • Maximise the US Opportunity, hence US is the biggest market at moment.

Macro-Environment

✅ Macro-environment, despite the increased competition in the sector we believe that Zip still has significant opportunity to growth as leading world player on BNPL space as according to the firm, there is approximately $24 trillion and the current penetration of BNPL in global eCommerce spend is currently only 2.1%.

✅ Increasing adoption of digital wallets across international markets presents an opportunity to grow in-store transaction through innovations like Tap & Zip, which allows Zip customers to pay with a virtual card in physical stores.

✅ Huge worldwide adoption of Crypto., the company is well positioned to exploit it. Great growth rate in USA, the biggest yet market for Zip, with potential further adoption once the company launches Crypto facility.

Technical Analysis

SP has continued to move sideways since April 2020 within a channel range of $6.8 to $8.90. Despite the last sell off that has dragged the SP out of the channel as lower as lows $6, SP has been quickly bought back above the channel, confirming our theory that a lots of shorters would quickly close their positions, hence bringing the SP back to the channel.

Remember that Zip is a trade stock, hence exiting a position at the highs is critical due the potential sell off that has been seeing over and over again in this stock.

If you have “invested on Zip” 52 weeks ago you would have made 12% gain if you were selling now, whereas we saw the stock swinging over 160% in some stages all the way to $14.3. Several other similar spikes on SP were detected, confirming the nature of this stock.

Entry Details (Restrict VIP Members area)

The entry point still remains the same, at the lower end of the channel around $7 with an exit at the high side of the channel “high $8’s).

A breakout to the upside is more likely than a breakout to the downside, however investors should be mindful about any market correction or sell off on tech stocks.

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