Could the Zip (ASX:Z1P) share price make a comeback in 2021? 

The Zip (ASX: Z1P) share price struggled to outperform in the second half of 2020. Could 2021 be a better year for Zip shareholders?

| More on:
asx share price rebound represented by wooden blocks spelling rebound with coins on top

Image source: Getty Images

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 struggled in the second half of 2020, falling 8%. Compare this to the Afterpay Ltd (ASX: APT) share price, which climbed more than 70% over the same period.

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. 

Foolish takeaway

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. 

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Shares to Watch

⏸️ Shares to Watch

What next for the a2 Milk (ASX:A2M) share price?

Could you call the A2 Milk Company Ltd (ASX: A2M) share price a cheap growth stock after it slumped to…

Read more »

⏸️ Shares to Watch

What's in store for the Afterpay (ASX:APT) share price in 2021? 

The Afterpay (ASX: APT) share price has surged more than 275% in 2020. Here's a little of what investors can…

Read more »

wondering about asx share price represented by man surrounded by question marks
⏸️ Shares to Watch

Is the Zip (ASX:Z1P) share price a buy yet?

The Zip Co Ltd (ASX: Z1P) share price continues to underperform despite an exciting capital raising. Could it finally be…

Read more »

questioning whether asx share price is a buy represented by man in red shirt scratching his head
⏸️ Shares to Watch

Should you buy the Appen (ASX:APX) share price dip?

Could the Appen Ltd (ASX: APX) share price be a buying opportunity after its recent selloff? We take a look…

Read more »

Share Fallers

Why this broker thinks it's time to buy Qantas (ASX:QAN) shares

As state borders re-open to domestic tourism, this broker thinks it could be time to start buying Qantas Airways Limited…

Read more »

wondering about asx share price represented by man surrounded by question marks
⏸️ Shares to Watch

Could this be why the Zip (ASX:Z1P) share price is underperforming?

Could this be why the Zip Co Ltd (ASX: Z1P) share price is down 50% from its August highs and…

Read more »

Hands grabbing for high rung on a ladder pointing to the sky
⏸️ Shares to Watch

The Rhipe (ASX:RHP) share price has jumped 8% today. Here's why.

The Rhipe Ltd (ASX: RHP) share price has popped 8.59% after announcing its first quarter FY21 update. Here's the run…

Read more »

⏸️ Shares to Watch

Broker updates are mixed on these 6 high profile ASX 200 shares

It's a mixed bag of broker updates this week across a range of high profile ASX 200 shares including Afterpay…

Read more »