May was another shocker of a month for the Zip share price. Here's why

Another painful month for Zip shares has sent shareholders heading for the exits.

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Key points

  • Zip shares down 14% in May 
  • The strong volatility in the tech sector has caused a selloff in Zip shares 
  • In addition, a two decade high inflation rate could be affecting consumer spending habits 

The Zip Co Ltd (ASX: ZIP) share price has been spiralling downwards to post a loss of 14% in May.

This comes despite the buy-now pay-later (BNPL) company keeping relatively quiet on the news front lately.

At the time of writing, Zip shares are down 3.59% to 94 cents apiece.

What happened to Zip shares?

Late last month, Zip advised that a number of its securities are due to be released from voluntary escrow.

On the day, this sent the Zip share price heavily south, with a 10.82% drop following the announcement.

Furthermore, the recent dip as described by management in its third quarter trading update could be the significant volatility in equity markets. The S&P/ASX All Technology Index (ASX: XTX) has fallen around 8% over the course of May.

Investors continued to sell off Zip shares following negative sentiment across the tech industry.

This is being driven by high inflation, a tightening monetary policy and the latest COVID-19 outbreak in China.

Particularly, consumer prices in Australia have surged at the fastest annual pace over the last 20 years.

The Reserve Bank of Australia updated its statistics, indicating that inflation has risen 5.1% in the March quarter of 2022. This is being blamed on high levels of building construction activity combined with shortages of materials and labour, as well as record automotive fuel prices.

However, in an effort to slow down the rising price of goods, the RBA has been lifting interest rates.

What this means is that consumers are less likely to spend on discretionary items when interest rates are picking up.

The cost of debt such as credit cards as well as personal loans will require extra payments, affecting consumer spending habits.

Ultimately, this impacts Zip's business model.

Zip share price summary

It has been a rollercoaster ride for Zip investors.

The company's shares rocketed to an all-time high of $14.53 in February 2021, before plummeting since. This means based on today's price, Zip shares are down more than 93% from their record high.

On valuation grounds, the company commands a market capitalisation of around $588.19 million.

Motley Fool contributor Aaron Teboneras 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 Scott Phillips.

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