Is the slide in BNPL shares like Zip (ASX:Z1P) just getting started?

What’s in store for BNPL shares in 2022? Here’s what the experts think

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Zip share price Z1P A wide-eyed man peers out from a small gap in his black zipped jumper conveying fear over the weak Zip share price

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Key Points

  • BNPL shares are extending losses today amid a sector-wide selloff that’s been in situ for 3 months.
  • Research from Macquarie shows BNPL web traffic slowed in December.
  • Afterpay grew merchant additions in December, and customers could be gravitating towards larger players in the BNPL space.

Shares in soon-to-be acquired BNPL player Afterpay Ltd (ASX: APT) touched a new 52-week low today after sliding more than 7% into the red.

Fellow BNPL player Zip Co Ltd (ASX: Z1P) is also facing losses today and is now trading around 4% lower at $3.75 apiece.

Shares in the payment solutions company have been on an extended run down south these past 12 months after peaking at $13.92 last February.

Since that time, Zip has glided lower and now trades at 52-week closing lows at the time of writing. And with weakness in the broad sector impacting high-beta tech names in the BNPL industry, could it be that the slide in BNPL shares is just taking off? Let’s take a look

What are experts saying about BNPL shares?

The large BNPL players could in fact be consolidating their positions within the marketplace according to the team at Macquarie in a recent note.

Analysts at the firm reckon that large BNPL companies could benefit from the recent volatility, as investors and customers alike seek out quality within the space.

However, the firm also notes that web traffic in the BNPL domain saw a 1.9% month-on-month slow down in December, driven partially by the Omicron variant and augmented by potential government regulation on the sector.

The investment bank’s research also surmised that Afterpay’s web traffic fell by 20% year on year whereas other players including Zip all saw a reduction in traffic of up to 10%.

Macquarie infers that these results point to a slowdown in consumer spending and potentially a drift away from smaller BNPL services into larger, more established names.

As such, large players in the space could be positioned to capture additional market share in the wake of these headwinds, Macquarie also says.

The firm notes that even as web traffic slowed, Afterpay has grown merchant additions sequentially for several months across all regions, primarily in Australia and US.

Not only that, but Macquarie reckons that Afterpay may absorb any regulatory concerns versus peers, given its acquisition by Block.

It made no changes to its recommendations on players in the BNPL industry, keeping its buy rating on Afterpay and sell rating on Zip, valuing the companies at $160 and $5.70 per share respectively.

Most analysts are bullish on Afterpay as well, with a consensus price target of $114 in 2022, whereas the sentiment appears to be evenly split for Zip, whose consensus valuation is $7.72.

So both Afterpay and Zip are priced to display a considerable portion of upside in 2022, should the bull thesis from these brokers play out.

Zip share price snapshot

It’s been a shocker past 12 months for the Zip share price, having tanked more than 34% in that time. In the past month, shares are another 23% in the red.

Year to date things haven’t started any better for Zip, while it’s down another 13% since January 1.

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