Does the lower Zip Co (ASX:Z1P) share price make it a takeover target?

It’s all happening in the Buy Now Pay Later sector before the entry of the global tech giants next year…

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Shares in buy now pay later (BNPL) company Zip Co Ltd (ASX: Z1P) are inching lower in early trade and now change hands at $5.45.

Zip Co is back in the spotlight alongside its peers as the BNPL industry preps itself for the entry of tech heavyweights Apple Inc (NASDAQ: AAPL) and PayPal Holdings Inc (NASDAQ: PYPL) into the market next year.

This has market watchers peering closely at the sector’s next moves, especially with BNPL pioneer Afterpay Ltd (ASX: APT)’s US$29 billion merger with Square Inc (NYSE: SQ) due for settlement.

Zip is now trading at 3-month lows, having come down hard off its high of $7.12 on 20 October. It is now trading around 52-week lows and investors don’t appear interested.

Could Zip be a target at this share price?

That is the question bouncing around investor circles right now. And it seems there could be some activity behind the scenes already.

According to reporting from The Australian, BNPL providers Zip Co, Sezzle Inc (ASX: SZL), and Openpay Group Ltd (ASX: OPY) have been putting the feelers out testing buyer appetite ahead of Apple’s entry to the market.

The report also notes that Zip Co’s founder and managing director Larry Diamond was recently in the US for business talks to see how the company might scale there.

And with more than 7.3 million users and 50,000 retail partners, many would argue Zip certainly has the pillars to do so.

Any bigger fish wanting to offer a decent price to buy Zip Co would also gain direct exposure to this retail and customer base.

Aside from that, Zip hasn’t slowed its operations in 2021 despite its share price hitting the brakes. The company recently completed an acquisition of a Czech firm and also signed a partnership with Newegg to provide BNPL to its customers in Canada.

Brokers Ord Minnett and Morgans are both bullish on the direction of Zip’s share price, valuing Zip shares at $9.50 and $8.56 respectively in recent updates.

Most experts agree that Zip’s goal is to penetrate the US market with force. However, despite recent investments in rebranding and marketing, Citi reckons this hasn’t increased customer conversion.

The broker says Zip’s 4% increase in monthly downloads – which it uses to examine new customers – was fairly weak considering its spending efforts.

Nonetheless, it has a buy recommendation on the share and values Zip at $7.40/share in a recent note. If its share price keeps sliding, the gates might open up for a buyer of Zip Co but there’s nothing concrete out there at the moment.

Yet, with Zip’s potential expansion into the US market, The Australian notes that a merger with the $1 billion BNPL player Sezzle would be an alternative to listing on the American exchanges.

Zip Co share price snapshot

In the past 12 months, the Zip Co share price has fallen 12%. However, it has stayed in the green this year to date, gaining almost 4% since January 1.

Despite this, it has fallen 21% in the past month and has tanked another 8% in the past week of trading.

Should you invest $1,000 in Zip Co right now?

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The Motley Fool writer Zach Bristow has no holdings in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Square, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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