The Zip share price lost 94% of its value in FY22

Zip shares were the worst performers on the ASX 200 in FY22..

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Key points

  • Zip shares were the worst performers on the ASX 200 in FY 2022
  • The BNPL provider's shares lost over 90% of their value during the 12 months
  • A range of factors were weighing on the former market darling

The Zip Co Ltd (ASX: ZIP) share price was the worst performer on the ASX 200 index during the 2022 financial year.

Over the 12 months, the buy now pay later (BNPL) provider’s shares dropped from $7.57 all the way down to just 45 cents.

That represents a very disappointing 94% decline from top to bottom.

Why was the Zip share price sold off in FY 2022?

After going sideways for the first few months of the financial year, the Zip share price started its long slide in late October.

This followed the release of its first quarter update. While the initial reaction to this update was positive, it didn’t take long for cracks in investor sentiment to show.

Although Zip continued to deliver strong top line growth, its transaction per customer metric in the United States disappointed the market. Combined with slowing customer growth following its rebrand in the key market, this sparked fears that Zip could have a significant number of inactive customers on its books that will eventually drop off.

The next lowlight for the Zip share price came after the eventual release of its half year results in February. Those results were delayed so that the company could also launch a ~$200 million capital raising relating to the acquisition of smaller rival Sezzle Inc (ASX: SZL).

However, this capital raising was not being used to fund the acquisition of Sezzle, but rather to support the two businesses post-acquisition.

Management explained that the proceeds would be used to “strengthen its balance sheet and positions Zip for sustainable growth by providing more capital runway to execute on the potential synergies from its proposed acquisition.”

However, retail investors weren’t biting. The company successfully raised approximately $150 million from institutional investors at a big discount to the prevailing Zip share price, but only $24 million of the $50 million sought from retail investors. Concerns over the price Zip was essentially paying to acquire Sezzle’s customers didn’t help. Especially given potential customer overlaps.

Those that didn’t take part may well be thanking their lucky stars now considering how much the Zip share price has fallen since then.

What else?

There are a number of other factors that have weighed heavily on its shares over the last 12 months.

This includes rising interest rates, the market’s aversion to loss-making companies, weakness in the tech sector, rising bad debts, recession concerns, and an increase in competition.

The latter includes the arrival of tech giant Apple in the space with the launch of its BNPL service.

Apple’s BNPL service works with any merchant that already supports Apple Pay and does not require a new payments terminal. Furthermore, consumers can use the service even if the merchant doesn’t actively offer BNPL.

Here’s hoping the next 12 months are better for shareholders.

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 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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