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The Zip Co share price is up 65% in 12 months

The Zip Co Ltd (ASX: Z1P) share price is pushing higher on Tuesday and is up almost 1% to $5.13.

If things stay this way, the buy now pay later provider’s shares will end the current financial year with a 65% gain.

Why is the Zip Co share price up 65% in 12 months?

After a reasonably mixed first half of the financial year, Zip Co’s shares have been on fire in the second half for a couple of reasons.

The first has been its strong sales, customer growth, and bad debt performance in FY 2020 despite the pandemic.

For example, during the third quarter, Zip Co delivered an 84% increase in quarterly transaction volume to $518.7 million, a 96% lift in quarterly revenue to $45 million, and a 67% jump in customer numbers to 1.95 million.

This strong form continued into April and then into May. For the latter, the company posted monthly transaction volume of $189.3 million and revenue of $15.6 million. This was a 63% and 78% increase, respectively, over the same period last year.

It also added 65,000 new customers in May, lifting its total to 2.1 million. This represents a total increase of 63% since the same time last year.

Importantly, although it has risen slightly, Zip’s net bad debt stood at 2.16% at the end of May. This is in-line with expectations and significantly outperforming the market average. Furthermore, lead indicators are pointing to a reduction in bad debts in the months ahead.

U.S. expansion.

Another catalyst for its strong share price gain has been its decision to take on Afterpay Ltd (ASX: APT) in the $5 trillion U.S. retail market.

Zip Co will enter the lucrative market after signing an agreement to acquire New York-based buy now pay later provider QuadPay.

QuadPay is a leading, high growth, instalment provider with a strong focus on innovation and customer centricity. It has 1.5 million customers and 3,500 merchants on its platform. From these it is currently generating annualised total transaction value of over $900 million and annualised revenue of $70 million.

Is it too late to buy Zip shares?

I think the acquisition of an established player in the U.S. market was a great move, rather than launching from scratch.

If the company can make a success of its U.S. expansion, which I’m optimistic that it will, then it could grow materially over the next decade and generate strong returns for investors.

Though, I would only buy Zip’s shares if you’re prepared to make a long term investment and have a high tolerance for risk.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. 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.

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