Zip (ASX:Z1P) share price sinks 8% to 52-week low after brokers weigh in on its Q2 update

Zip’s shares are sinking on Friday…

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Key points

  • The Zip share price has dropped to a new 52-week low
  • Weakness in the tech sector and broker notes are weighing on its shares
  • Macquarie has slashed its price target by 40%

The Zip Co Ltd (ASX: Z1P) share price is having a disappointing finish to the week.

In afternoon trade, the buy now pay later (BNPL) provider’s shares are down ~8% to a 52-week low of $3.32.

Why is the Zip share price falling today?

Investors have been selling down the Zip share price on Friday amid a broad market selloff which is being felt hardest in the tech sector.

For example, at the time of writing, the ASX 200 is down 2.4% and the S&P ASX All Technology index is down 3.3%.

In addition to this, several brokers have responded to the company’s second quarter update, which appears to be weighing on the Zip share price today.

What are brokers saying?

The team at Macquarie was disappointed with Zip’s performance during the quarter. In response, it has retained its underperform rating and cut its price target on the company’s shares by a massive 40% to $3.40.

Macquarie notes that Zip’s momentum in the key US market is slowing in response to customer additions. This led to the company’s revenues falling short of the broker’s estimates.

Over at Citi, its analysts were also disappointed with its performance but remain a lot more positive on the Zip share price. It has retained its neutral rating and $5.85 price target.

Citi was pleased with the company’s top line growth but not its bad debts.

It explained: “Zip’s 2Q trading update was largely in-line, with group 1H revenue of $304 million (pro forma) slightly below Citi forecasts of $304 million when adjusting for the acquisitions completing through the course of 2Q. Looking ahead, Omicron’s impact to retail represents a risk to 3Q, however signing up of large Enterprise merchants in the US is key for 2H, with Zip noting that it is in advanced discussions with top 50 US retailers.”

“We expect earnings downgrades on the back of the higher than expected net bad debts in Australia but note that declining monthly arrears rate suggests that net bad debts should fall going forward,” it concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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