Zip Co Ltd (ASX: Z1P) shares are among the most popular and heavily traded shares on the Australian share market.
In light of this, there will no doubt be a lot of interest in its full year results next month.
Ahead of the release, I thought I would take a look at what the market is expecting.
What is the market expecting from Zip in FY 2021?
Given that Zip recently released its fourth quarter update, there won't be too many surprises when the company hands in its report card.
For example, that update reveals that Zip grew its active customer by 87% to 7.3 million and its merchant by 84% to 51,300.
Impressively, more than half of its active customers are now in the United States. At the end of the period, the company had 4.4 million customers in the United States, 2.8 million in the ANZ region, and approximately 70,000 in the UK.
Investors may want to look out for an update on customer growth so far in the first quarter of FY 2022.
Another big loss is expected
Zip is of course operating at a loss as it focuses on investing heavily in its global growth plans.
As a result, another sizeable loss is expected by the market. Analysts at Citi, for example, are forecasting a loss of $152 million in FY 2021. Anything significantly better than this could give Zip shares a boost.
Are Zip shares in the buy zone?
Despite forecasting a $152 million loss, Citi still believes Zip shares are in the buy zone.
Its analysts recently put a buy rating and $8.90 price target on the company's shares. This compares to the latest Zip share price of $6.79, implying potential upside of 31% over the next 12 months.
Citi sees risks to margins but notes that it still has a very long runway for growth.
The broker commented: "While the slowdown in US customer adds in 4Q could reflect increasing competition, we expect customer adds to pick-up in 1H22e driven by onboarding of enterprise merchants (e.g. Mercari, Shein). Our investment thesis remains unchanged – while we continue to see downside risk to Zip's growth and margin outlook from a medium-term perspective given its US and UK operations lack scale, we remain Buy rated as we expect Quadpay's Shop Anywhere offering to drive growth in the near-term, with Citi 10% above FY22e consensus revenue forecasts."
Zip shares are up 21% in 2021. Shareholders will no doubt be hoping this run continues next month.
