'Strategic sense': What brokers are saying about the Zip (ASX:Z1P)-Sezzle deal

Here's what analysts are saying about Zip's acquisition of Sezzle…

| More on:
Broker looking at the share price on her laptop with green and red points in the background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Opinion is divided on Zip's acquisition of Sezzle.
  • However, the team at Morgans believes it makes strategic sense.
  • The broker also sees a lot of value in the Zip share price.

The Zip Co Ltd (ASX: Z1P) share price is falling again on Wednesday.

In morning trade, the buy now pay later (BNPL) provider's shares are down 3% to $2.00.

Why is the Zip share price falling?

The Zip share price has come under pressure today amid broad weakness in the tech sector following a poor night of trade on the Nasdaq index.

In addition, there has been a few question markets raised over its decision to acquire rival Sezzle Inc (ASX: SZL).

Analysts at both Citi and Macquarie have given the deal a lukewarm response, with Citi highlighting that it is an expensive way to acquire customers.

Not everyone is negative on the deal, though. One leading broker that is largely positive on the idea of a Zip-Sezzle tie up is Morgans.

'Strategic sense.'

Morgans believes the acquisition of Sezzle makes "strategic sense" and will put Zip in a "materially stronger position in the key US market."

Its analysts explained: "Clearly, the Sezzle deal makes strategic sense for Z1P. The deal increases both Z1P's global transaction levels (currently A$7.9bn) and customer base (currently 9.9m) by around ~30-35% respectively. It gives Z1P a materially stronger position in the key US market, with Z1P/Sezzle customer overlap being relatively contained (25%). A stronger product mix and enhance distribution channel mix are other benefits."

And while it suspects that the market will remain sceptical on the synergies that Zip is suggesting it will unlock with the deal, Morgans doesn't feel they are unreasonable.

The broker said: "We expect the market to remain sceptical on the revenue synergies in this deal, however, they do seem to have a logical basis, in our view, e.g. the potential to win more merchants with a larger combined customer base, and the ability of Sezzle customers to shop anywhere with Z1P's app driving higher spend in new categories, etc."

Morgans retains its add rating.

Morgans continues to believe that the Zip share price offers a lot of value for investors and has retained its add rating. And while it has slashed its price target down to $3.94, this is still almost double where its shares currently trade.

Its analysts said: "Clearly the global environment has changed for BNPL operators and for investors it's now not a space for the faint hearted. We do, however, think the global growth opportunity remains large for companies that can execute in the BNPL space. The scale provided by the acquisition of Sezzle and a more considered growth agenda, could see Z1P be one of those winners, and with Z1P now trading on 2x revenue, we maintain our ADD recommendation."

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.

More on Broker Notes

Happy couple doing grocery shopping together.
Broker Notes

Buy one, sell the other: Goldman's verdict on Coles vs. Woolworths share prices

One stock is set for a 26% share price gain over the next 12 months while the other is destined…

Read more »

Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

These ASX 200 shares could rise 20% to 50%

Big returns could be on the cards for owners of these shares according to analysts.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Broker Notes

Why this ASX 100 stock can rise 14% to a new 52-week high

Goldman Sachs thinks investors should be buying this top stock now.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Broker Notes

Goldman says buy this ASX 200 share for a 14% annual return

This overlooked stock could be a good option for investors according to the broker.

Read more »

A female broker in a red jacket whispers in the ear of a man who has a surprised look on his face as she explains which two ASX 200 shares should do well in today's volatile climate
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »