Buy now, pay later business Zip Co Ltd (ASX: Z1P) has announced the acquisition of Sydney tech company Urge. The Zip share price is slightly down.
Zip’s Urge acquisition
Urge was only formed in 2018. It helps shoppers find and buy the items they’re looking for, which helps drive sales higher, it also increases the reach and exposure for retailers.
Its expertise is in the search functionality, optimisation and indexation, all of which will be integrated into Zip’s platform globally, beginning with the QuadPay app in the US.
The Urge acquisition has an upfront cost of $3 million (paid by issuing 432,516 shares to Urge shareholders). Another $5.5 million deferred consideration may be received if it achieves certain goals in the next 3.5 years.
Marketing
Zip has also issued 725,689 shares to pay for marketing and promotional services provided by Mediplan. These were issued at a price of $6.89 per share. No other shares are expected to be issued under this arrangement.
It may seem a bit odd to pay a supplier with shares. Perhaps Zip management think the share price is riding high, so it’s better than paying in cash.
Management increase in remuneration
The base salary of its co-founders are going to be increased.
Managing director and CEO Larry Diamond will see his base salary rise to $520,000 including super. The long term equity added to the value of 50% of base salary. He will get performance rights of $249,150 in February 2021.
Executive director and chief operating officer (COO) Peter Gray will see his base salary rise to $500,000 inclusive of super. The long term equity added to the value of 50% of base salary. He will get performance rights of $239,150 in February 2021.
Summary
The acquisition seems like an exciting move and could materially improve Zip’s user experience without it costing the company much.
But it’s at an expensive price. I’m just not sure about the future of all of these buy now, pay later operators. They may go up over the coming months, but at some point they have to start generating profit to justify the high expectations (eg, Tesla is now making profit). Will the merchant margin suffer with competition? I’m not sure.
There are quite a few other ASX growth shares I’d rather buy first such as Pushpay Holdings Ltd (ASX: PPH).
