The Zip Co Ltd (ASX: Z1P) share price has fallen more than 30% since its record all-time high of $10.65 in late August. Following its exciting US-based 'QuadPay' acquisition, expanding geographic footprint and recent partnership with eBay, could now be the time to buy the Zip share price at a discount?
FY20 highlights
Zip and Afterpay Ltd (ASX: APT) have emerged at the end of FY20 as leaders in the buy now, pay later (BNPL) sector. Following the acquisition of QuadPay, Zip bolstered its position as a global BNPL player across 5 markets, with a combined annualised TTV of $3.2 billion and 4 million customers. The US opportunity is significant and QuadPay itself has seen a strong start to FY21 with US$70 million+ TTV in July, more than 30% higher than the June quarter average.
Looking into FY21, Zip will continue to capitalise on the fast growing BNPL market opportunity. It intends on launching in the UK market in 1H21 following a pause due to COVID-19. Zip will also launch its own business BNPL and credit offering to SMEs in Australia. Producing additional products via integrated solutions to its retail partners and channels will increase the breadth of opportunity to include both shoppers and businesses. I believe a continued focus on global expansion and product innovation will see better days for the Zip share price in the medium–long term.
Is it a buy?
Given the recent surge in the Zip share price and BNPLs in general, it's likely that the sector won't deliver outstanding returns in the near term. It's ability to push higher is likely subdued without further additional announcements. Furthermore, factors such as PayPal entering the BNPL space, the US market selloff and US elections will add further uncertainty and increase volatility.
This isn't the first time that we've seen a sharp pullback due to negative news in the BNPL space. Throughout mid–late 2019, a series of announcements including an AUSTRAC investigation, Visa's intentions on launching a BNPL by January 2020, MasterCard acquiring a consumer financing solutions business 'Vyze' and speculation over regulation all resulted in sharp selloffs.
Notwithstanding the near-term risks and challenges for the Zip share price, the business is growing strongly, is well funded and there is no shortage of opportunities. I wouldn't be rushing to buy Zip shares, but I believe a buy opportunity will emerge once the near-term volatility cools down.
