Where is the Christmas cheer for the Zip (ASX:Z1P) share price?

Zip shares are not having a strong start to the festive season.

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The Zip Co Ltd (ASX: Z1P) share price is not having a strong start to the festive season.

In the first few days of the month, Zip has dropped more than 6%. Over the past month the Zip share price has plunged 22%.

In-fact, it has been a steady decline for Zip since 20 October 2021 – it has fallen by 32%.

What’s happening to the Zip share price?

After hitting a high of almost $14 earlier this year, it has dropped by more than two thirds.

The business has continued to report growth. Only sellers would know why they are accepting a much lower price than earlier this year.

Some brokers are seeing some negative impacts for Zip.

For example, Macquarie Group Ltd (ASX: MQG) analysts note that both US and Australian growth rates were slowing down, with the US possibly affected by Zip rebranding from Quadpay to Zip. The three months to 31 December 2021 will be telling for ongoing growth considering it includes the important trading periods like Christmas, Black Friday and Cyber Monday.

UBS referred to the recent Payments System Board comments on buy now, pay later surcharges. The board said:

The Board has also concluded that it would be in the public interest for ‘buy now, pay later’ providers to remove their no-surcharge rules, consistent with the Board’s longstanding position on such rules. Given the complexity of the regulatory issues, the Bank will continue engaging with the Treasury on regulatory approaches.

The broker thinks this is a bad thing for the Zip share price.

Recent growth

Despite those negatives, Zip does continue to report a high level of growth.

For the three months to September 2021, quarterly revenue grew 89% year on year to $136.8 million on the back of transaction volume growth of 101% year on year to $1.9 billion.

Customer numbers grew 82% to 8 million and merchants on the platform jumped 71% to 55,200.

The business continues to seek international growth through acquisitions. One of its latest moves is expansion into India with an investment in ZestMoney.

ZestMoney is one of the largest and fastest growing buy now, pay later platforms in India with more than 11 million registered users, more than 10,000 online merchants and a presence in 75,000 physical stores.

Zip also reported that in Australia its arrears went from 0.91% at 30 September 2020 to 1.87% at 30 September 2021.

As well as India, it’s now looking to expand in Mexico, Canada and the Middle East.

Is the Zip share price good value?

Both Macquarie and UBS rate Zip as a sell. But the Zip share price has fallen so much that their price targets of $5.70 and $5.40 are both more than 10% higher than where it is now.

Other broker price targets from different price targets imply a high level of potential growth. For example, Morgans has a price target of $8.56, which is more than 70% higher than today.

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

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended ZIPCOLTD FPO. The Motley Fool Australia has recommended Macquarie Group Limited. 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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