Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Down 67% in 2022, is the Zip (ASX:Z1P) share price a bargain?

The Zip Co Ltd (ASX: Z1P) share price has been one of the worst performers on the ASX in 2022. Is it so cheap that it’s now a bargain?

Zip is one of the larger global buy now, pay later players.

Zip’s share price demise

This year alone has seen a huge decline for Zip shares. The last 12 months show a drop of more than 80% for the BNPL company.

It has been rough, but is the worst over?

Zip is facing a number of headwinds.

For starters, investors seem to be turned off ASX growth shares. Rampant global inflation is leading to expectations that central banks are going to increase interest rates more than previously thought. The US Federal Reserve just started with a 0.25% increase and it’s expecting a few more increases over the rest of this year until the rate is between 1.75% to 2% by the end of 2022.

Higher interest rates are, theoretically, meant to lead to lower asset prices.

But for Zip, higher interest rates could be particularly difficult because interest is one of its major expenses. It’s unlikely that Zip can charge merchants any more, so a higher interest rate is likely to lead to a lower profit margin than the BNPL business has seen recently. There could also be higher bad debts, which Zip is already seeing.

Another key issue for BNPL is that some major competitors are now entering the space such as Commonwealth Bank of Australia (ASX: CBA) and PayPal Holdings Inc (NASDAQ: PYPL). Zip isn’t the only BNPL that has dropped heavily this year. Block Inc CDI (ASX: SQ2), Splitit Ltd (ASX: SPT) and Openpay Group Ltd (ASX: OPY) have all fallen hard. 

What are some positive points?

It’s not all bad for the Zip share price.

Zip is working hard on getting to positive cash flow status, which would mean it’s able to rely on its own cash flow. Investors are less of a fan of unprofitable business these days. How much is a business worth if it’s making losses?

The company is still growing quickly organically. In the first half of FY22, group revenue rose 89% to $302.2 million and customers grew by 74% to 9.9 million. If it can become cash flow positive whilst still growing quickly, that will help the business. It still has an enormous growth opportunity in numerous countries outside of Australia including the US, India, the UK, Canada, Mexico, in the EU and in the Middle East.

Zip is also in the middle of trying to acquire Sezzle Inc (ASX: SZL) which will help grow its market share in the US.

Final thoughts on the Zip share price

It has fallen a lot. If the company is able to turn profitable then it could be a turnaround story. However, it seems Zip is going to be less profitable in the coming years, with more competition. It’s important not to anchor to a previous price, there is no rule that says Zip should bounce back to $5 or $6 this year. At this stage, it’s hard to say whether Zip is a bargain because of the uncertainty of its long-term profitability potential.

I’m not currently looking at the buy now, pay later industry for my portfolio.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report — or get it emailed to you — for FREE by CLICKING HERE NOW or the button below.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.
Skip to content