The Zip Co. Ltd (ASX: Z1P) share price has dropped by more than 12% over the last month. Could it be a buy now, or should investors wait until later?
Zip shares are actually 31% lower than the peak of the last six months of $8.78 in July 2021.
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What do brokers think of the Zip share price?
Despite the heavy decline, some analysts remain bearish on the BNPL business.
For example, analysts at both Macquarie Group Ltd (ASX: MQG) and UBS rate Zip as a sell, with price targets of $5.40 and $5.70 respectively.
UBS notes the recent negative that regulators are now thinking that it would be a good idea if merchants are able to add BNPL fees onto the costs for consumers, if that merchant wants to.
However, the broker Morgans has a much more positive outlook on the business. This broker rates Zip as a buy, with a price target of $8.56 on the Zip share price. The broker was thinking about Zip's recent quarterly update as well as the potential growth over the coming years.
Zip's quarterly update
The buy now, pay later business reported a high level of growth in the first quarter of FY22.
It said that it achieved record group quarterly revenue of $136.8 million, an increase of 89% year on year. The transaction volume growth was 101% year on year to $1.9 billion.
This growth was helped by the 82% growth of customer numbers year on year to 8 million. Merchants on the platform went up by 71% to 55,200.
Profitability margins
Zip said that it has maintained market leading buy now, pay later margins with revenue as a percentage of total transaction value (TTV) at 7%.
Looking at the cash transaction margin in FY21, this reduced by 40 basis points from 3.8% in FY20 to 3.4% in FY21.
However, in the first quarter of FY22, the arrears increased. Arrears are accounts that have been delinquent for more than 60 days. At 30 September 2020, arrears were 0.9%. This had risen to 1.87% at 30 September 2021.
Profitability can be a key area that investors look at when deciding what to value the Zip share price.
International growth
Zip continues to make moves to expand globally.
For example, it has entered into an agreement with Microsoft to integrate Zip's instalment payment technology into the shopping experience within the Microsoft Edge web browser.
Zip has also continued its global expansion strategy with a move to India with a strategic investment in ZestMoney. ZestMoney is one the largest and fasting-growing BNPL platforms in India, with over 11 million registered users and more than 10,000 online merchants.
The buy now, pay later business also said that Zip Mexico is now live and processing transactions. It recently signed Claro Shop, one of the largest online marketplaces in Mexico.
Zip Canada also continues to grow, with Canadian consumers shopping through Zip's large US merchants.
Another broker thought on the Zip share price
There are a range of opinions on Zip shares. One rating is 'neutral' by Citi, though it still has a price target of $7.40 on the company. The broker notes that growth is slowing, but arrears are rising.
Zip management believe that re-investing for growth will generate the greatest value for shareholders over the long-term.
