The Zip Co Ltd (ASX: Z1P) share price has done well in April, what will it do in May 2021?
Why was April good for the Zip share price?
There’s still a few days to go, but at the time of writing Zip shares have gone up by 17% over the month to date.
Zip shares got a major boost after the buy now, pay later business reported its update for the FY21 third quarter to 31 March 2021.
In that update, quarterly revenue increased 80% to $114.4 million. Quarterly transaction volume went up 114% to $1.6 billion. Transaction numbers increased 195% to 12.4 million.
The customer numbers and merchants continue to grow at a very impressive pace. Customers went up 88% to 6.4 million and merchants rose 81% to 45,300.
A key part of the investment thesis for Zip is the growth potential in the US with its Quadpay business. Management described Quadpay as a standout, where it delivered very strong growth in what’s normally a quieter 3-month period. It saw $762 million of transaction volume (up 234%), $54.4 million in revenue (up 188%) and customers rose to 3.8 million (up 153%).
Zip management said that the overall quarter was an exceptional set of numbers and that it’s truly one of the fastest growing global buy now, pay later business leaders.
The company also pointed out that the UK is starting to deliver some good progress and that the country has a very exciting future. It was launched in the UK in late 2020 with the use of Quadpay technology. A number of large merchants have joined the platform including Homebase, JD, Boohoo and The Fragrance Shop.
What’s next for the Zip share price in May 2021?
It’s difficult to say because of how volatile the shares have been over the last 12 months.
Zip is still far below its prior peak of almost $14, but who knows when, or if, it will ever get back to those prior heights.
The buy now, pay later business is definitely generating a lot of underlying growth and I think it seems cheaper than Afterpay Ltd (ASX: APT). It’s one to watch in the space.
Brokers are mixed on Zip with some like UBS and Macquarie Group Ltd (ASX: MQG) thinking that it’s going to fall during 2021, whilst others think there’s more room to grow such as Citi and Ord Minnett.
Summary thoughts
The revenue and transaction growth is very exciting. I’m just concerned that there is going to be margin pressure for the whole buy now, pay later industry. Zip shares could fall if interest rates rise, or if there’s regulation about passing on costs to customers.
Zip is one of the better ones in the BNPL space, but there are other ASX growth shares that attract me more.
