Could the Zip Co Ltd (ASX: Z1P) share price fall to just $5.50 by Christmas?
Some brokers have had their say on the prospects of the buy now, pay later business.
For shareholders that have been investors in Zip for several months already, it has been a pretty volatile ride.
Since the middle of February 2021, the Zip share price has fallen by around half.
In three months it has fallen around 16%.
Looking over the 2021 time period, the payments business has actually been reporting a significant amount of operational growth, particularly in the FY21 result and with its acquisitions. The numbers that Zip reports can have an effect on the Zip share price.
Zip FY21 result
In the latest financial year, Zip revealed triple digit growth.
It said that revenue increased 150% year on year to $403.2 million, with a 176% increase of transaction volume to $5.8 billion.
The number of customers increased by 248% to 7.3 million, whilst merchants on Zip's network went up 109% to 51,300.
It also said that growth continued to accelerate in FY22, with FY22 year to date transaction volume up 58% year on year in Australia and 240% year on year in the US.
Zip also revealed that it was maintaining "strong unit economics" while investing for, and delivering, "strong growth" with a cash transaction margin of 3.5%.
The buy now, pay later business also said that it delivered a "strong" credit performance in light of COVID-19, driven by repeat customer usage and investments in its decisioning capabilities. Net bad debts as a percentage of transaction volume was 1.28%.
Global growth
Not only is Zip growing in the US with Quadpay, but it has been busy with expansion into other areas.
At the time of the FY21 result, it was operating in 12 markets, across five continents, with the additions of the UK, Canada and Mexico, plus the regional market entries into Europe, the Middle East and Southeast Asia. Zip also agreed to acquire the remaining shares in the South Africa BNPL business, Payflex, which has "access to a sizeable underbanked, young and fast growing African population."
But that's not the only thing Zip has been doing. It recently also announced an acquisition in India. It has bought an investment in ZestMoney, another BNPL business.
Zip says that India has the potential to become one of the largest markets globally and by FY26 is forecast to have US$300 billion in BNPL payment volume. It's attracted to the younger Indian population with the "aspirational individuals' view of credit and how they engage with financial services". Online shopping growth also has a long way to go.
The buy now, buy later business also recently signed an agreement with Microsoft to integrate Zip within the Microsoft Edge shopping experience.
Could the Zip share price fall to $5.50?
Price targets are for the next 12 months, not just the next two or three months, so it may not hit the below price targets by Christmas.
However, with that in mind, the broker UBS actually has a price target of $5.40. This suggests the Zip share price could drop by more than 20% over the next year. Whilst the broker acknowledges that Zip is growing strongly, this is also coming with higher expenses.
However, there are other brokers with a positive outlook on its long-term growth potential. For example, Morgans rates Zip as a buy with a price target of $8.87.
