MENU

Could Zip Co and AfterPay get smashed like Menulog?

The Zip Co Ltd (ASX: Z1P) share price hit a record high of $1.80 this morning as excitement around the growth of the buy-now-pay-later consumer credit sector continues to build.

For the six-month period ending December 31 2018 Zip Co posted a net loss of $6.76 million on revenue of $34.2 million, with it now boasting over 12,600 retail partners and 1 million consumers signed up.

Retail partner growth of 62% and consumer sign-up growth of 100% sounds impressive, unless of course you’re an AfterPay (ASX: APT) investor.

In which case it sounds slightly pathetic, given Afterpay grew consumer and retail partner sign ups 118% and 101% respectively off a much larger base.

Zip now has a market value of $567 million based on a $1.80 share price and this is arguably expensive given the industry does not possess high barriers to entry or pricing power.

For example a deep pocketed competitor could come along and offer retailers better terms (e.g lower fixed fees on sales such as 1%) just to win market share, while running at a loss.

For example we have seen this type of scenario recently in the food delivery aggregator space, where incumber and disruptor Menulog has been hammered by very deep-pocketed overseas competitors like Deliveroo, Foodora and Uber Eats. All of whom  run at a loss for now to win market share.

In the future it’s possible that Zip and AfterPay could meet the buy-now-pay-later versions of Deliveroo or Uber Eats.

Therefore the low barriers to entry mean I wouldn’t recommend betting too much on these companies, even if you’re still a believer in their long-term growth potential.

Top 3 ASX Blue Chips To Buy For 2019

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 2019."

Each one pays a fully franked dividend. 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 move – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tom Richardson owns shares of AFTERPAY T FPO and Just Eat the owner of Menulog.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now