The Zip (ASX:Z1P) share price is down 6%…profit taking, competition or lockdown fears?

The buy now, pay later craze shows little sign of abating.

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illustration of laptop with down arrow and the word zip representing zip share price going down.

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The Zip Co Ltd (ASX: Z1P) share price is sliding today, down 6% in afternoon trading.

At the current price of $7.74 per share, Zip Co has a market cap of $4.4 billion.

So why are shares of the popular buy now, pay later company sinking today?

We have 3 suspicions.

Why is the Zip share price falling today?

First off, Zip enjoyed a stellar run in June, right through last Wednesday’s close.

From the opening bell on 1 June through to the closing bell on 23 June, Zip soared 23% to $8.60 per share. That leads me to suspect there could be some profit taking going on.

With today’s intraday losses taken into account, Zip’s shares are now down 10% since Wednesday’s close. Though year-to-date the BNPL company remains up 38%.

Whether that remains the case is up in the air. As my Foolish colleague, Tristan Harrison, pointed out last week, Macquarie Group Ltd (ASX: MQG) rates Zip as a sell, with a target price for the shares of $5.70. UBS also believes the Zip share price will head lower, with a target price of $5.60.

Another possible reason for the selloff could be resurgent lockdown fears. With Australia facing the dire prospect of more long-term lockdowns to stamp down the coronavirus, Zip’s BNPL services may face a drop in demand.

Finally, the market was made aware of a big positive for BNPL powerhouse Afterpay Ltd (ASX: APT) on Friday, and hence a likely negative for Zip. Afterpay’s new pay anywhere offering has been adopted by a host of major US retailers.

According to another Foolish colleague, James Mickleboro, broker “Citi believes that Afterpay’s new offering will increase customer engagement in the US market and put pressure on Zip’s US-based QuadPay business.”

Whatever the reasons, investors are certainly putting pressure on Zip’s share price today.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. 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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