Things have taken a sharp u-turn for Zip Co Ltd (ASX: Z1P) shares this week, after a 20% rally earlier this month.
Wednesday was a sea of red for buy now, pay later (BNPL) shares after news broke that Apple might be working on a new BNPL product.
On the same day, PayPal revealed its BNPL service will not charge consumers a late payment fee.
Ever since, Zip shares have been on a rollercoaster ride, tumbling 16.3% in the last three sessions to $6.88.
According to an article featured on Livewire yesterday, Shaw and Partners portfolio manager and Market Matters (MM) author James Gerrish is considering reducing exposure to Zip shares.
BNPL shares yet to stage a rebound
BNPL shares have struggled to rebound following Wednesday's news.
"News that the current main US player Affirm (AFRM US) has now fallen more than 12% over the last two days, with a lack of bounce overnight, is a poor sign for the Australian players this morning", said Gerrish.
As such, Zip shares tumbled 10.95% on Wednesday to $7.32 before losing another 5.60% to $6.91 on Thursday.
While selling has receded on Friday, the Zip share price is still down 0.58% to $6.87 at the time of writing.
What's next for Zip shares?
Zip has been quiet on the announcement front, despite expectations it would report its quarterly update this week.
In response to Zip's upcoming results, Gerrish: "When it does happen, it should be a strong one in MM's view but this could easily be overshadowed by the Apple news over the coming weeks/months.
"Simply it feels likely that the short-term sentiment towards the stock which we still rate as the best value in the sector is going to keep a lid on gains through the $8-9 region, making the risk/reward relatively average for now."
Any positive takeaways?
Perhaps one positive takeaway from two tech behemoths entering the BNPL scene is that "it confirms to us that this will be a legitimate sector for years to come", according to Gerrish.
Despite more legitimacy for BNPL as a business model and sector, he also commented that "margins are likely to be significantly squeezed as new players go in search of customers before they focus on retention".
