Top brokers have had their say on the Zip Co Ltd (ASX: Z1P) share price forecast.
Zip is one of the largest buy now, pay later (BNPL) businesses on the ASX. Only Afterpay Ltd (ASX: APT) is bigger in Australia.
Zip shares have had a volatile time during 2021. In the calendar year to date, they have risen by around 6%. But since 16 February 2021, the Zip share price has actually fallen by approximately 57%.
The buy now, pay later business is now valued much lower. That's despite the large takeover offer by US payments giant Square for Afterpay showing a strong comparable valuation in the BNPL sector.
But could Zip be about to make a big recovery? Some brokers think so.
Zip share price forecast
Brokers have price targets. That number is where the brokers feel the share price is headed over the next 12 months.
There are a range of opinions about Zip, from bearish to bullish.
Ord Minnett has a price target of $9.50 – a whopping 60% higher than today's level. This broker feels that Zip is going to keep growing in size rapidly, in terms of how much volume it processes, and growing its customer numbers.
Morgans is another broker with an optimistic view on Zip shares – the price target is $8.56. Whilst Morgans thinks the short-term may not be quite as strong as expected, it still thinks the business has a compelling future.
However, Macquarie Group brokers don't think Zip shares are going to do much in the coming months. They have a price target of $5.70, which is slightly below today's price. Macquarie's Zip share price forecast takes into account the slowing growth in both Australia and the US.
How much growth is actually being generated?
Zip isn't trying to make a profit at the moment, it is simply growing as much as possible. It aims to grow its market share of the BNPL space and the wider payments market.
The business is more focused on metrics like customer growth, revenue growth, and transaction volume growth.
Some investors believe that the latest quarter is the most important update to look at. So, let's look through the highlights of the first three months of FY22 to September 2021.
Zip's quarterly revenue increased 89% year over year (YoY) to $136.8 million and this was a record. Quarterly transaction volume was up 101% to $1.9 billion – also a record.
Customer numbers increased by 82% YoY to 8 million. The number of merchants on the platform also rose by 71% YoY to 55,200.
There are not many ASX shares that are growing revenue that quickly.
One of the things noted by brokers is that Zip has gone through a global rebrand to the new look Zip in six countries. In the US, Quadpay was rebranded to Zip. A brand launch campaign began in the middle of October.
Whilst Zip's Australian net bad debts (accounts that are more than 180 days delinquent) were flat, the arrears (more than 60 days delinquent) rose from 0.91% to 1.87% YoY.
Zip's business revenue grew 19% quarter over quarter (QoQ) to $3.8 million.
International seeds planted to help the Zip share price?
Zip's international segments may have a bigger influence on the Zip share price as they become a larger part of the picture.
Zip US revenue increased by 182% in US dollar terms YoY to US$49.3 million.
Zip UK saw revenue growth of 20% QoQ to $1.2 million, with QoQ customer growth of 79%.
Zip also expanded into India with an investment in ZestMoney. Zip Mexico is now live and processing transactions.
Management said Zip Canada continues to grow. In the Middle East, Zip recently invested in the BNPL business Spotii.
Zip has also completed the acquisition of Twisto Payments for European expansion.
