Zip Co Ltd (ASX: Z1P) shares have slipped ~30% in March and almost 50% from their February all-time record high of $14.53. While the Zip share price remains positive in year-to-date returns, how did things go so sour for the leading buy now, pay later (BNPL) provider?
What's been impacting the Zip share price?
Pending update for potential US listing
A potential catalyst for the significant run back in the Zip share price in late-January may have been the rumours surrounding the company's secondary listing in the United States. Zip management spent several days in front of US investors, highlighting the company's growth story in the world's largest economy and attracting US investor interest. US tech shares typically fetch a higher valuation and a secondary listing could benefit the Zip share price.
Two months on, however, and the market has yet to receive any clarification about a secondary listing.
"Grim near-term outlook"
Macquarie Group Ltd (ASX: MQG) released a research report on 24 March for Afterpay Ltd (ASX: APT) titled "Buy Now Pay 2030". The report mapped out a 10-year flightpath for the BNPL industry, including key inflection points and key triggers.
The report noted that:
The BNPL industry has seen explosive growth in the past few years and quickly gained popularity as a payment alternative, but as with many other such trends experienced in the past (China Commodities in 2015, China Autos in 2018), we think an excessive number of participants has entered the industry in the near term resulting in industry overcapacity.
We expect this to be followed by a few years of industry consolidation (i.e. pain for all players) before industry normalisation at a healthier supply/demand equilibrium.
A relevant example could be ASX lithium shares that have experienced a similar boom, bust and consolidation cycle.
Despite the grim outlook, the commentary sees the industry become healthier at the end of the cycle, with the "strong getting stronger and the weak losing out".
Broader weakness for ASX tech shares
The Zip share price slump since mid-February has largely coincided with the weakness across the broader tech sector. The S&P/ASX 200 Info Tech Index (ASX: XIJ) reached an all-time record high on 10 February, before falling ~17% to a 5-month low. This compares to the S&P/ASX 200 Index (ASX: XJO) which is relatively flat over the same period.
