Zip share price dives 11%, closing below 50c for first time in 6 years

Zip shares have been undone again today.

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a boy with sad eyes pulls the zip over his mouth and nose while doing up a large jacket where the collar stands up at head height.

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Key points

  • Zip shares lost more than 11% today, closing at a multi-year low of 46.5 cents each
  • Rising interest rates to combat inflation have weighed upon the BNPL industry
  • Consumer spending is most likely to be affected as the cost of debt continues to soar

The Zip Co Ltd (ASX: ZIP) share price continued to sink to multi-year lows today.

For the first time since 2016, the buy-now pay-later (BNPL) company’s shares closed at less than 50 cents apiece.

To be precise, Zip shares lost 11.43% today to finish at 46.5 cents each, just marginally up on their intraday low of 46 cents apiece.

Why is there no end in sight for Zip shares?

With the S&P/ASX 200 Financials (ASX: XFJ) index also recording a 0.42% loss today, Zip shares seemed to bear the brunt.

It appears fears surrounding more interest rate hikes from the Reserve Bank of Australia (RBA) are weighing down investor confidence.

In the March quarter, inflation rose 5.1% which was the highest rate in many years.

Ultimately, this impacts consumer spending on discretionary items as the cost of debt increases on such expenses as mortgages and credit cards.

Some economists are predicting the RBA will further lift the official cash rate up to 2.5% by mid-2023. This is considerably higher than the current 0.85% interest rate that’s on offer for now.

Similarly, other shares in BNPL companies finished in the red today.

The Block Inc CDI (ASX: SQ2) share price finished 4% off its all-time low, closing at $84.63, down 1.59%.

As well, shares in Splitit Payments Ltd (ASX: SPT) and Humm Group Ltd (ASX: HUM) ended the day down 12.5% and 3.81%, respectively.

Zip provides business update

In a late afternoon release to the market, Zip provided more clarity on how it is tracking in the current trading environment.

Management noted that the company’s underlying business remains strong, with new onboard merchants as well as growth in customers and transaction volumes.

Importantly, the company said it is focusing on driving its credit losses below the 2% threshold of total transaction volumes (TTV).

Furthermore, Zip said that it is well placed to weather the current storm of rising interest rates with a number of initiatives underway. These include consumer fee increases, merchant repricing, increased customer repayment velocity, and more.

As of 31 March, Zip had $303 million available in cash and liquidity.

Zip share price snapshot

Over the past 12 months, the Zip share price has plummeted by 94%, with year-to-date down more than 89%.

In February 2021, the company’s shares reached their all-time high of $14.53 each.

Zip currently presides a market capitalisation of around $319 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 positions in 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 Scott Phillips.

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