What a rollercoaster ride it has been for the Zip Co Ltd (ASX: ZIP) share price.
From reaching an all-time high of $14.53 in February 2021, the buy-now pay-later (BNPL) shares are now trading at 53 cents. That represents a massive 96% decline in just 16 short months.
And even when you look at year-to-date, its shares are down 90%. This means the share price would need to increase by 900% to break even.
While you may think Zip shares are too cheap at current valuations, here’s why I won’t be buying at all.
Investors fall out of love with the BNPL industry
The once gleaming BNPL industry was popular among investors as consumer trends shifted during the pandemic.
Government stimulus packages among record low interest rates drew an insatiable appetite for shoppers.
However, as quickly the BNPL market soared, it has now almost turned to dust.
To put that into perspective, Zip was once valued more than $6 billion at its height. More than retail giant, JB Hi-Fi Limited (ASX: JBH).
Today, the BNPL company has a market capitalisation of around $371.49 million. A staggering fall of 94%.
Why I won’t be a buyer of the Zip share price
With so many market entrants to the BNPL sector, it has become increasingly crowded.
Titled “Apple Pay Later”, the service offering doesn’t charge any interest or late payment fees to customers.
In addition, a number of major Australian banks such as Commonwealth Bank of Australia (ASX: CBA) have promoted their own offering.
Furthermore, Zip is experiencing credit losses outside its target range. With the latest figures at around 2.6% of total transaction volume, this may increase due to the current macroenvironment.
Essentially, what this means is that consumers are less likely to spend on discretionary items when interest rates are high. The cost of debt such as credit cards, personal loans and mortgages will require extra payments, affecting consumer spending habits.