MENU

Why is the Zip Co Ltd (ASX:Z1P) share price falling on a record result?

Shares in Zip Co Ltd (ASX: Z1P) fell 2.4% to $1.02 on Thursday, after the company released results for the three months to June 2018, despite this being defined as a “record quarter” for the company. The stock partially recovered after having been down 7% earlier this morning.

Zip provides point-of-sale credit and digital payment solutions to the retail sector and to education and health industries. Its offer includes buy-now-pay later services and free budget planning app Pocketbook.

Results in the last quarter of FY18 were indeed an improvement on the previous quarter and record high figures.

Zip achieved its highest quarterly transaction volume, up 26% to $171 million. It also obtained a record high revenue of $13.2 million, an 18% increase on the previous period.

The number of customers increased 19% to over 738,000, with Zip now accredited with over 10,000 merchants. Customer engagement continues to increase: in the last quarter, 83% of all Zip transactions were performed by existing customers.

So why did the stock tumble today? There are two possible explanations, and both involve Afterpay Touch Group Ltd (ASX: APT), Zip’s big rival in the buy-now-pay-later space.

Shares in Afterpay are rocketing on the latest business update: underlying sales are up 39% over the previous quarter. Afterpay is not only bigger, it’s also growing faster than Zip. This may suggest that Zip’s result is good, but not so impressive.

Even the fact that Zip’s customer retention rates are increasing has a flipside: only 17% of transactions are made by new customers, a sign that the business might be peaking.

The second potential explanation for the cold reception of Zip’s result is that the company might be seen as a minor player in the payment solutions market, which is particularly tough on small players. Think of credit and debit cards, the most widely used non-cash payment services. These cards are issued by only a handful of players worldwide. How many buy-now-pay-later services can coexist in Australia?

Foolish takeaway

Payment services are characterized by a strong network effect. Consumers want services accepted by the most merchants. Merchants accept payment systems used by many consumers. Afterpay has 2.2 million customers and is accredited with over 16,000 merchants in Australia. Zip must fight to close the gap with its rival.

The good news is that Zip recently signed its largest partners to date: Super Retail Group Ltd (ASX: SUL) and Wesfarmers Ltd’s (ASX: WES) Officeworks.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO and Super Retail Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!