The Zip Co Ltd (ASX: Z1P) share price is bouncing back on Friday following a selloff yesterday.
In early afternoon trade, the buy now pay later (BNPL) provider’s shares are up 3% to $7.19.
This appears to have been driven by a reasonably positive response to its update by brokers this morning.
How did brokers respond?
One of the more positive brokers was Morgans. This morning the broker retained its add rating but trimmed its price target to $8.57.
Based on the latest Zip share price, this implies potential upside of 19% over the next 12 months.
It commented: “Zip Co’s 4Q21 update showed continuing strong growth momentum across the group, with key metrics increasing ~13%-14% sequentially. With growth trends broadly reasonable, the size of the share price weakness (-8%) on the day was somewhat of a surprise, in our view. However, we do note factors including no comment on recent media speculation of potential corporate interest in Z1P and some rise in arrears.”
What else was said?
Analysts at Ord Minnett are similarly positive on the quarterly result and the Zip share price.
This morning the broker retained its accumulate rating but cut its price target down to $10.50. This implies potential upside of 46% over the next 12 months.
According to the note, the broker was pleasantly surprised by the performance of its US QuadPay business. It notes that it has exceeded its expectations four quarters in a row now.
QuadPay added over 600,000 new customers during the quarter, which was 1.6% higher than the broker was forecasting. Also beating Ord Minnett’s expectations were Zip’s total transaction value (TTV) and average spend per customer. They came in 6% and 4% higher, respectively, than what its analysts were expecting.
One broker thinks the Zip share price is overvalued
However, not all brokers are positive on the Zip share price at the current level.
A note out of UBS reveals that its analysts have retained their sell rating and lowly $5.60 price target. This implies potential downside of 22% over the next 12 months.
Contrary to Ord Minnett’s views, Zip underperformed UBS’ expectations in the US during the quarter, with QuadPay’s revenue falling over 10% short of its forecasts. Outside this, the broker continues to have concerns over execution risks and costs.