The underwhelming second half performance takes credit away from what was otherwise a very solid 50% increase in the Zip share price in 2020. With the successful completion of its $120 million capital raising to fuel growth in all aspects of its business, could 2021 be the year for Zip shareholders?
Capital raising overview
Zip’s $120 million capital raising was issued at $5.34 per new share. The funds have a broad allocation throughout Zip’s business, from fuelling its strong core business in Australia and New Zealand to investing in global growth and seeking further opportunities to expand into other regions.
US growth is accelerating
The United States market is the largest addressable retail market in the world, worth more than US$5 trillion. Buy now, pay later (BNPL) companies are eager to disrupt the retail market in the US and capture as much market share as possible.
The Zip story so far in the US has been largely positive, with the company’s total transaction values in November increasing 205% to US$264.2 million compared to $86.6 million in November 2019. Likewise, Afterpay has experienced similar growth on a percentage basis with its US sales increasing 186% to A$1 billion in November 2020.
The US will continue to be the centrepiece of Zip’s growth story. The company believes it has strong momentum to continue its growth trajectory through two key levers: further product innovation and strategic relationships with marquee merchants and partners.
UK launch in progress
The Zip team has experienced delays with its proposed United Kingdom launch in the second half of 2020. The company believes it has has established the foundations to capitalise on the UK opportunity with enterprise merchants such as JD Sport and Boohoo secured. According to Zip, its pipeline is also gaining traction and its global relationships are being leveraged to drive growth.
The UK market represents a substantial opportunity for Zip, with the region’s retail turnover totalling 394 billion pounds (A$700 billion) in 2019. This compares to Australia’s $392.6 billion in retail turnover in the same year.
The UK market is shaping up to deliver significant revenue for the already established Afterpay, with its UK sales soaring 315% in November to A$0.2 billion compared to the prior corresponding period.
Exploring global opportunities
The real wildcard in Zip’s proposed growth plan is its new markets division. This division hit the ground running with two new investments covering the United Arab Emirates and European regions. Spotii is headquartered in the UAE and focused on the Gulf Cooperation Council consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Another of Zip’s investments, Twisto, is a leading payments platform operational in the Czech Republic and Poland, with the ability to deliver passport licensing across the European Union.
The Zip share price is currently trading at $5.46 at the time of writing, surpassing its capital raise issue price. The company has ambitious plans to target more geographies, accelerate its US growth and finally launch in the UK in 2021. Currently trading nearly 50% below its 52-week high, it will be interesting to see what 2021 brings for the Zip share price.