The Zip Co Ltd (ASX: Z1P) share price has sunk around 90% since February 2021.
Looking at the last 12 months, it is the worst performer in the S&P/ASX 200 Index (ASX: XJO). It's down by around 80%.
It has been a painful period for many of the ASX's buy now, pay later operators.
The Sezzle Inc (ASX: SZL) share price has dropped approximately 80% over the last year, with a 54% decline in 2022.
Another significant decline has been seen by the Splitit Ltd (ASX: SPT) share price, which dropped around 80% over the last year. In 2022 it has fallen around 40%.
The Openpay Group Ltd (ASX: OPY) share price has fallen around 86% in the last year. It has halved since the start of this calendar year.
Despite the massive decline of the Zip share price, its market capitalisation is still above $1 billion according to the ASX.
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Growth to restart BNPL investor sentiment?
According to reporting by The Australian, the global buy now, pay later (BNPL) sector is expected by RBC Capital Markets to achieve a compound annual growth rate of 30% to 2025.
The United States was the location of the most growth in spending through e-commerce last year. US e-commerce spending grew 155% to US$56 billion. Globally, BNPL accounted for 2.9% of global e-commerce spending according to RBC, up from 1.6% two years prior. By 2025, this is expected to double, "bringing total spending to about US$440 billion." Could this growth help the Zip share price?
The Australian noted that in Australia, BNPL grew by 40% last year, with BNPL amounting to US$5 billion of sales and 11% of the e-commerce market.
Why is buy now, pay later resonating so much with customers?
The Australian quoted RBC Capital Markets' comments on the BNPL sector:
We think BNPL as a payment method helps to solve a number of consumers' pain points, including affordability for larger items without the need to revolve, access to credit for those consumers who have an aversion to credit cards, while also tapping into meaningful demographic tailwinds (greater exposure to a younger customer).
On the merchant side, we think incremental sales, higher average baskets and access to deeper customer insights are all supportive for merchants' desire to offer BNPL as a payment method at checkout.
Zip continues to scale quickly
In the Zip half-year result, the company announced rapid growth. Revenue rose 89% to $302.2 million.
It reported that Australian operations had delivered 14 consecutive quarters of positive cash flow. According to Zip, the US operations are also on a path to positive cash flow.
However, during the half year, the cash transaction margin declined to 2.1% (down from 3.7% in the prior corresponding period), reflecting rising bad debt costs reflective of current credit headwinds as well as an increased weighting towards the rest of the world.
Zip said it's addressing its risk decisioning policies and collections and recoveries processes to immediately address the credit performance.
Is the Zip share price a buy?
UBS thinks there is more pain to come despite the considerable decline, with a price target of just $1.
From today's share price, that price target implies a drop of more than 30%. That came after the lower-than-expected cash earnings and the recent corporate action of a planned acquisition of Sezzle as well as a capital raising at a price of $1.90. Those newly-issued shares are already down around 20%.
Morgans is much more optimistic, with a price target of $3.94. That suggests a rise of over 150% in the next 12 months.
