The Zip Co Ltd (ASX: Z1P) and Afterpay Ltd (ASX: APT) relationship almost feels like a sibling rivalry, except one is stealing the spotlight and delivering a far superior performance.
Looking back, buy now, pay later (BNPL) shares, more broadly speaking, were able to set fresh record all-time highs leading into the August reporting season on the back of unrelenting bullishness for the sector. The BNPL sector reached a near-term peak in August that was followed by a subsequent selloff. This may have been due to full year results that were arguably already 'priced in' and increasing competition from the likes of payments giant PayPal Holdings Inc (NASDAQ: PYPL) and local banks.
Fast forward to today, the Afterpay share price has lifted almost 40% from the August sell-off. It cruised past the $100 per share mark with ease while the Zip share price continues to linger at 6-month lows of around $6. Here are some reasons as to why the Afterpay share price continues to dominate Zip.
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Superior growth performance
For the most part, Afterpay has been able to deliver superior growth across all financial and operational metrics. In FY19, Afterpay delivered a 140% increase in transaction volume and 115% increase in revenue compared to the respective 108% and 138% from Zip. In FY20, Afterpay's transaction volume increased by 112% and revenues increased 103% compared to respective 87% and 91% from Zip.
Increasing global expansion
Zip currently rivals Afterpay in terms of its international footprint with operations in Australia, New Zealand, South Africa, the United States and the United Kingdom. At face value, Zip does operate in more countries compared to Afterpay.
However, Zip does not report on the individual performances of New Zealand and South Africa. This is likely due to the minimal revenue contribution from its smaller markets. In Zip's FY20 report, the company did mention that it had "over 200 merchants integrated to-date" in South Africa. This compares to its 27,600 merchants in Australia and 6,800 merchants in the US.
By comparison, in Afterpay's FY21 first quarter report, the company revealed that its acquisition of Pagantis, a European BNPL provider, was "progressing well" and "on track for completion by the end of the 2020 calendar year, pending regulatory approval by the Bank of Spain". Pagantis will provide Afterpay with immediate licence to operate in Spain, Fance, Italy and Portugal as well as pending licence passport applications in Germany and Poland.
Afterpay's plans to expand into Asia are also progressing well with an established base in Singapore to drive its development in the South East Asia market.
