The Zip Co Ltd (ASX: Z1P) share price has been the worst performer on the S&P/ASX 200 Index (ASX: XJO) on Friday.
At one stage today the buy now pay later provider's shares were down over 6.5% to $7.40.
The Zip share price has recovered a touch in afternoon trade and is currently down 3.5% to $7.66.
Why is the Zip share price sinking lower today?
This decline appears to have been driven by profit taking from investors, rather than anything company specific.
Prior to today, buy now pay later provider's shares were up a massive 22% since the end of last week.
Why have its shares been on fire this week?
There have been a couple of catalysts for Zip's strong share price gain this week.
The first is bargain hunters swooping in after a terrible 30 days of trade in September.
Zip shares were the worst performers on the ASX 200 in September with a massive 32.6% decline. This decline was driven by concerns over increasing competition in the U.S. market following an announcement by PayPal.
Given that Zip's U.S. based QuadPay business is still only a reasonably small player in the lucrative market, there are concerns that PayPal's entry could stifle its growth.
Some investors (myself included) appear to believe its shares were oversold in September and had fallen to an attractive level.
What else is supporting the Zip share price?
A second catalyst for its strong share price gains this week was a third quarter update out of Sezzle Inc (ASX: SZL) on Thursday.
For the three months ended 30 September, the buy now pay later provider reported a massive 231.5% year on year increase in underlying merchant sales (UMS) to US$228 million (A$318 million).
This was driven by a 178.1% year on year increase in active customers to 1.79 million, a 178.3% lift in active merchants to 20,890, and strong repeat customer growth.
Sezzle's update appears to indicate that the buy now pay later market in the United States continues to grow at a rapid rate. This bodes well for its aforementioned QuadPay business.
Should you invest?
I continue to believe Zip shares would be great options for patient long term-focused investors.
While there are a lot of risks associated with its U.S. expansion because of increasing competition, there certainly is plenty of room for multiple companies to operate successfully in the $5 trillion market.
QuadPay may never become the market leader, but it could still be a big contributor to Zip's growth over the 2020s.
