Why the Zip (ASX:Z1P) share price is volatile today

Here’s why the Zip Co Ltd (ASX:Z1P) share price is bouncing around on Tuesday following its major announcement yesterday…

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The Zip Co Ltd (ASX: Z1P) share price is having a bit of a mixed day on Tuesday.

In early afternoon trade, the buy now pay later (BNPL) provider’s shares are back in the blavk and up 1% $7.17.

Why is the Zip share price bouncing around?

The Zip share price appears to have come under a little bit of pressure today following a mixed reaction to its expansion announcement on Monday.

In case you missed it, Zip has announced that it is expanding into the European and Middle East markets via the acquisitions of established player in both markets.

In Europe, Zip will acquire the shares it doesn’t already own in Twisto Payments for 89 million euros (~A$140 million). Whereas in the Middle East, the company is acquiring the shares it doesn’t already own in UAE-based Spotii for US$16 million (~A$21 million). This will give Zip access to a $1.1 trillion annual ecommerce market in Europe and a Middle East market that is growing fast.

The acquisition of Spotii is expected to complete in the third quarter of calendar year 2021, whereas the Twisto acquisition is expected to complete in the fourth quarter.

What was the reaction?

Analysts at UBS have been running the ruler over Zip’s plans and sees both positives and negatives.

According to the note, the broker wasn’t surprised with the acquisitions and acknowledges that the two markets provide the company with significant growth opportunities.

However, it believes the businesses will require significant amounts of capital in order to scale.

Its analysts commented: “While the potential total addressable market for both businesses is large, both businesses are relatively early stage, we also highlight the capital intensity of both businesses if they are to scale.”

This could mean that another capital raising will be required in the not so distant future in order to grow these businesses.

Unfortunately, as we have seen previously with the Zip share price, capital raising speculation often weighs on investor sentiment and could potentially limit the upside from here for the time being.

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James Mickleboro 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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