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Why the Zip (ASX:Z1P) share price was just halted

The Zip Co Ltd (ASX: Z1P) share price has been halted after announcing it’s going to undertake a capital raising.

Zip’s capital raising

The buy now, pay later business said that it’s going to undertake a capital raising and formally announce it later this week.

Zip shares will come back to the market on Friday at the latest.

Whilst there wasn’t much detail in the ASX release, the Australian Financial Review was able to share some details about what the BNPL company is expecting.

Zip is reportedly going to launch a $300 million convertible note offering. This is sort of like a bond which can be converted into shares in the future by a certain date at a certain price.

The AFR’s Street Talk suggested that the reason for the offering was that the buy now, pay later business wanted to use the current strength of its share price to improve the strength of its balance sheet.

My thoughts on this

I think it makes a lot of sense to raise more money with the Zip share price last trading at around $9.60, which is 280% higher than a year ago.

The business did just report its FY21 third quarter numbers which saw elevated levels of growth of transaction volume, revenue, customers and merchants.

Growth is slowing in the domestic markets, but in the US its Quadpay business continues to perform very strongly. It delivered growth in what’s normally a quieter period. Zip US saw transaction growth of 234% to $762 million, 188% growth of revenue to $54.4 million and customers increasing 153% to 3.8 million. This level of growth will help the Zip share price over time.

With this extra cash raised, Zip will be able to fund more growth for merchants, which may push the Zip share price higher.

However, until Zip is generating a net profit and a positive operating cashflow, it may need to keep tapping the market for more funds.

I prefer Zip shares to Afterpay Ltd (ASX: APT), but there are ASX growth shares out there that are already generating a net profit each year.

Is BNPL the opportunity of a lifetime or is the sector a ticking time bomb?

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Is BNPL the opportunity of a lifetime or is the sector a ticking time bomb?

Rask's analyst has just finished a 7,500-word report, The Ultimate BNPL Sector Report, taking a deep dive into this booming ASX sector. It shines a spotlight on each of the major players. You can get the full analyst report for FREE by CLICKING HERE NOW.

Note: the report is 100% free.

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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