Why is Sezzle outperforming the Zip (ASX:Z1P) share price so far in 2021

The battle of buy now pay later, Sezzle is winning so far this year…

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If you hadn’t noticed, the share price of US-based payments company Sezzle Inc (ASX: SZL) is outperforming the Zip Co Ltd (ASX: Z1P) share price year-to-date (YTD). While Sezzle now holds a higher share price than its Australian peer, it remains the underdog of the two.

So, how has the now $952 million company managed to pull greater returns for investors than Zip?

A little Zip share price history lesson

Earlier in the year the entire buy now pay later sector was bustling. Most of the ASX-listed shares with exposure to the instalment sector experienced a sugar rush between mid-January and mid-February. The momentum brought on by a wave of high growth figures from the companies.

At that point in time, Zip diverged and was substantially outperforming Sezzle. On 16 February 2021, the year-to-date returns for Zip and Sezzle were 149% and 90% respectively.

However, the payments sector suffered a hammering in the following months as investors cycled to more ‘value’ orientated stocks.

More recently, the Zip share price has plateaued – steadily bouncing between $6.70 and $7.40. During this time, Sezzle has really begun to outshine its Aussie rival.

Recent Sezzle activity

The big shift in performance between the two companies occurred on Thursday last week. That’s when Sezzle resumed trading following the announcement of a 3-year agreement with US-based retailing giant Target Corporation (NYSE: TGT).

Under the agreement, Sezzle’s product will be used in-store and across Target’s digital platforms, providing guests with access to interest-free payment plans for purchases made at Target.

Sezzle’s share price was catapulted 22.7% higher on the news. Meanwhile, the Zip share price only gained 4.4% on the same day.

As of today, the Zip is up 31% YTD, but the recent excitement surrounding Sezzle’s latest agreement has pushed its YTD return to 49%.

Foolish takeaway

ASX share prices tend to eb and flow with announcements. The fact is when it comes to short-term moves in the market, it is heavily driven by emotion.

The fact that Sezzle has announced an exciting new agreement recently, whilst Zip hasn’t provided a price-sensitive update since late May, might be feeding into the variance between these two ASX shares’ recent performance.

However, the market is emotional until it’s proven – then it becomes fact. Whether Sezzle’s recent update means it will outperform Zip’s growth remains unknown until a later date.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Sezzle Inc. The Motley Fool Australia has recommended Sezzle Inc. 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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