The Zip (ASX:Z1P) share price crashed 33% lower in September

The Zip Co Ltd (ASX:Z1P) share price crashed 33% in September. Here's why the buy now pay later provider's shares were sold off…

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Zip Co Ltd (ASX: Z1P) share price was the worst performer on the S&P/ASX 200 Index (ASX: XJO) in September.

Over the 30 days, the buy now pay later provider's shares lost a disappointing 33% of their value.

Why did the Zip share price crash 33% lower in September?

As well as getting dragged lower in a tech selloff that led to the S&P/ASX All Technology Index (ASX: XTX) falling 4.9% last month, investors were selling Zip and other buy now pay later providers due to increasing competition in the United States.

For example, the Afterpay Ltd (ASX: APT) share price fell 12.5% in September and the Sezzle Inc (ASX: SZL) share price lost almost 33% of its value.

What is happening in the US market?

At the start of September payments giant Paypal announced its intention to enter the buy now pay later market with its Pay in 4 product.

Pay in 4 is a short-term payment solution that will allow consumers to make a purchase and pay over four interest-free instalments. This is just like Afterpay Ltd (ASX: APT), Sezzle, and Zip's US-based QuadPay business.

PayPal is due to launch Pay in 4 in the United States in the final quarter of 2020.

Investors appear concerned that its entry in the market will increase competition greatly and squeeze out some of the smaller players.

And although Zip's QuadPay business has a large and growing customer base in the country, it has nowhere near the same level of traction as market leaders Afterpay and Klarna. This could mean that PayPal's entry stifles QuadPay's growth and leads to Zip falling short of the market's lofty expectations.

Is this a buying opportunity?

While there is a lot of uncertainty given PayPal's entry, I still believe Zip would be worth considering as a long term option.

Especially considering the size of the US market. Management has previously noted that it is worth an estimated $5 trillion a year. This means there's plenty of room for multiple players to operate successfully in this market.

Though, I can't help but feel that it might be worth the company adjusting its US business model to be more in line with its Australian business to help it stand out in the crowded market. 

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 Nearmap Ltd. and ZIPCOLTD FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Nearmap Ltd. and Sezzle Inc. 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.

More on Share Fallers

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Core Lithium, Deep Yellow, EML, and Wildcat shares are falling today

These ASX shares are having a tough time on Wednesday. But why?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Select Harvests, Sayona Mining, Weebit Nano, and Woodside shares are dropping

These ASX shares are having a tough session on Tuesday.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why BHP, Core Lithium, IGO, and Smartpay shares are dropping today

These ASX shares are having a tough start to the week.

Read more »

A male investor erupts into a tantrum and holds his laptop above his head as though he is ready to smash it, as paper flies around him, as he expresses annoyance over so many new 52-week lows in the ASX 200 today
Share Fallers

Why Bubs, Select Harvests, Temple & Webster, and WiseTech shares are falling today

These ASX shares are having a tough time on Friday. But why?

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Appen, Bowen Coking Coal, Nick Scali, and Northern Star shares are falling

These ASX shares are having a disappointing session. But why?

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Brainchip, Healius, Latin Resources, and Praemium shares are sinking today

These ASX shares are having a tough time on hump day.

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Brickworks, Elders, SG Fleet, and TechnologyOne shares are falling today

These ASX shares are having a tough time on Tuesday. But why?

Read more »

Rede arrow on a stock market chart going down.
Share Fallers

Why Accent, Northern Star, Syrah, and Weebit Nano shares are falling

What's going on with these shares on Monday?

Read more »