Zip share price hits new multi-year low after brokers turn even more bearish

Zip shares are sliding again after brokers responded negatively to its quarterly update…

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Key points

  • Zip's shares have hit a new multi-year low
  • Investors have been selling the company's shares after brokers responded negatively to its quarterly update
  • Price targets have been slashed materially by analysts

The Zip Co Ltd (ASX: ZIP) share price has continued its slide on Friday.

In morning trade, the buy now pay later (BNPL) provider’s shares were down 6% to a new multi-year low of $1.08.

Why is the Zip share price dropping today?

Investors have been selling down the Zip share price on Friday after brokers responded overwhelmingly negatively to the company’s third quarter update.

In case you missed it, Zip reported third quarter transaction volume growth of 27% to $2.1 billion and quarterly revenue growth of 39% to $159.2 million. While this is solid growth, it was still well short of the market’s expectations.

In addition, softening usage metrics and worsening credit losses weighed heavily on investor sentiment.

What has been the reaction?

A number of brokers have given their verdict on the result and updated their recommendations accordingly.

According to a note out of Jefferies, its analysts have retained their underperform rating and slashed their price target by 46% to a lowly $1.00. The broker was disappointed by Zip’s softening transaction volumes, which it feels will only get worse as it tightens its credit settings to combat its worsening credit losses.

It was a similar story over at Macquarie Group Ltd (ASX: MQG). It was also disappointed with Zip’s quarterly update. This has seen the broker retain its underperform rating and cut its price target by 43% to $1.05.

Finally, over at Morgans, its formerly bullish analysts have downgraded the company’s shares from an add rating to a hold rating. The broker has also taken an axe to its price target, cutting it down to $1.26 from $3.94.

Morgans commented: “Overall, Z1P is early in implementing its refreshed strategy focused on getting to profitability. However clear evidence of improvement in the bad debt charge, the most likely near term catalyst in our view, is still a couple of quarters away (1Q23).”

“Clearly the global environment has changed significantly for the BNPL operators and for investors it’s not a space for the faint hearted. We ultimately do see a pathway for Z1P to get to profitability over the next few years benefitting from the scale provided by the Sezzle acquisition. However it remains a difficult journey with no shortage of risks and we move to a Hold recommendation,” it added.

One small positive for shareholders is that with the Zip share price fetching $1.08, it is now trading within touching distance of even the lowest price target.

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. has no position in any of the stocks mentioned. 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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