Is the BNPL party over? The Zip Co (ASX:Z1P) share price plunges 25% this YTD

Has the hangover set in for buy now, pay later shares?

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Key points

  • Zip shares have already plunged a further 25% this year to date (YTD).
  • The BNPL sector has suffered heavy losses of late, amid a violent selloff in ASX tech shares.
  • Zip is now trading at 52-week lows.

Shares in payments solutions company Zip Co Ltd (ASX: Z1P) closed the week 10% down last Friday, continuing an extended run into the red.

After gliding down 55% in the past 12 months, Zip shares have already plunged a further 25% this year to date (YTD) amid a sector-wide selloff in ASX tech shares.

With BNPL heavyweights like the recently-acquired Afterpay Limited (ASX: APT) and EML Payments Limited (ASX: EML) suffering heavy losses this YTD (down 20% and 11% since January 1 respectively), the BNPL party surely isn’t as cheerful as it was back in early 2021.

TradingView Chart

Not to mention smaller, high-beta names such as Laybuy Group Holdings Ltd (ASX: LBY) and Sezzle Inc (ASX: SZL) saw deeper losses of 86% and 75% in the last year respectively. The mathematics of percentages and stock gains/losses shows us that a 70% loss needs a 233% gain to recover and an 80% loss needs more than a 400% gain to recover to its original value. Ouch.

So is the BNPL party over, and the hangover started to set in? Let’s take a look.

BNPL suffers amid a brutal tech-wide selloff

BNPL shares like Zip Co have suffered extensive losses across the 12 month period to date. However, investors turned the heat up on the sector rolling into the new year, amid talks of a shifting interest rates regime and economic uncertainty from inflation.

The increase in US Treasury yields disproportionately impacts tech-weighted sectors – including the BNPL segment of the Australian tech industry.

As such, the S&P/ASX All Technology index (XTX) is also down 13% this YTD and the carnage has spilled over into the financial services and FinTech domains as well.

Although, the Zip share price was already in a fragile position coming into the selloff. Shares were under immense selling pressure coming into the new year after tumbling from a high of $13.92 back in February 2021.

Whilst Afterpay and EML were catching headlines for various reasons across the year, resulting in some volatility to the upside, Zip shares marched steadily south, showing no signs of recovery.

Zip is now trading at 52-week lows, with support looking weak at the present time. Shares have failed to break through key resistance points after being tested at those levels for several months, as shown on the chart below (in dark blue). Notice it began diverging away from the benchmark index around September — and it hasn’t slowed since.

TradingView Chart

Hence, Zip was in prime position to absorb the selloff as the trend was already in place for the point-of-sale credit and payment solutions provider.

Not even a record result from its second-quarter update is enough to entice investors back in for another round. In the quarter, the company recognised a record $2.6 billion in transaction volume and grew revenue 58% to a record of $167.4 million.

However, with the carnage set to continue across the Australian primaries and futures this week, it appears that investors are reshuffling capital to avoid more losses across the board.

Macquarie certainly advocates this course of action, recently slashing its valuation on the company by 40% to $3.40 and retaining its underperform rating.

The broker was disappointed with Zip’s quarterly performance, as it came in behind the investment bank’s estimates.

Citi on the other hand remained neutral after the trading update and held its valuation on the company at $5.85 per share.

The brokers differ on their opinion for Zip’s growth potential in the US. Macquarie reckons the wick has burned for Zip’s US customer additions, whereas Citi reckons the company is “in advanced discussions with top 50 US retailers”.

Alas, for now, the BNPL party is certainly starting to fizzle out, at least with respect to the current share prices and stock valuations within the sector.

More about the Zip share price

Zip shareholders are swimming in a sea of red across all major time frames. The Zip share price has collapsed around 55% in the last 12 months, sliding 25% in the past month alone.

The pressure has continued in today’s session and, at the time of writing, Zip shares have tumbled a further 2.55% from the open so far today.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited, EML Payments, and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended Afterpay Limited and EML Payments. 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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