Why did the Zip share price get smashed in March?

Zip’s shares were sold off again in March…

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Key points

  • Zip shares were out of form again in March
  • The BNPL provider's shares tumbled lower, bringing their year to date decline to 66%
  • Brokers are divided on where Zip's shares go next

The Zip Co Ltd (ASX: Z1P) share price continued its disappointing run during the month of March.

The buy now pay later (BNPL) provider’s shares dropped a further 13.4% during the period.

This meant that Zip share’s had lost approximately two-thirds of its value during the first quarter of 2022, which made it the worst performer on the illustrious ASX 200 index.

Why did the Zip share price sink during March?

Investors continued to sell down Zip’s shares last month after the BNPL provider announced an all-scrip deal to acquire rival Sezzle Inc (ASX: SZL) and a capital raising to support the growth of the two businesses.

In respect to the latter, at the start of the month Zip successfully completed its fully underwritten $148.7 million institutional placement. These funds were raised at $1.90 per new share, which was a 14% discount to the Zip share price at the time.

The company was then aiming to raise a further $50 million from retail shareholders through a share purchase plan. Though, it remains unclear how much Zip will raise from this part of the capital raising after the pullback by Zip’s shares made the share purchase plan less attractive to shareholders.

What else?

Also weighing heavily on the Zip share price last month was a broker note out of UBS.

The broker responded to Zip’s capital raising and the acquisition of Sezzle by downgrading the company’s shares to a sell rating and slashing its price target to $1.00.

With the company’s shares currently trading at $1.47, this suggests that the Zip share price could still fall a further 32% from current levels.

Though, it is worth noting that not everyone is bearish. Morgans believes the acquisition of Sezzle makes “strategic sense” and put an add rating and $3.94 price target on its shares. This is more than double where its shares trade at now.

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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