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Zip (ASX:Z1P) shares are going bananas

Zip Co Ltd (ASX: Z1P) shares are going bananas, it’s up around 9% after giving a QuadPay update.

For context, Quadpay is an international buy now, pay later provider which Zip is looking to acquire. There is going to be a meeting for shareholders to vote on the proposed acquisition at the end of August 2020.

QuadPay update

Zip said that QuadPay achieved record monthly transaction volume of more than US$70 million in July, representing a 30% increase in the June quarter average and a 600% increase year on year.

During July alone it added 133,000 customers and surpassed the 2 million customer milestone in August.

QuadPay has partnered with multiple Internet Retail 100 merchants including Fantatics (a global sports merchandiser) and Mercari (an online marketplace), representing combined online volume of more than US$3 billion. Other merchants it has added include Caleres Group.

Management said that the enterprise sales pipeline going into the holiday period continues to remain strong.

QuadPay has established a strategic partnership with Fiserv (a global provider of payments and fintech services) to offer buy now, pay later services across its US based merchant base, launching with Fanatics. It has also partnered with MasterCard Vyze to enable BNPL within the Vyze alternative lending stack.

QuadPay has secured a debt facility of up to US$200 million from Goldman Sachs, with mezzanine financing provided by Oaktree. This credit will be used to expand to new merchants and customers in the US. This will allow QuadPay to orginate more than US$2.5 billion on an annual basis – the company said this provided significant headroom for future growth.

In terms of profitability, QuadPay has net transaction margins (NTM) of more than 2%. That’s a good sign, it’s important for BNPL operators to be profitable rather just grow for the sake of growth.

Summary

On this update, I think Zip shareholders will vote to approve the acquisition. Zip is generating excellent growth in Australia and QuadPay is doing very well in the US. The whole BNPL industry is growing impressively.

I’m not sure if they’re good value, but the share price just keeps going up. In terms of payment businesses, I would prefer to buy Pushpay Holdings Ltd (ASX: PPH).

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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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