Here's why UBS tips the Zip share price to halve

The BNPL company reported a jaw dropping $1.1 billion loss from ordinary activities after income in FY22.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • Zip share price sinks to 91 cents 
  • UBS notes “material uncertainty” over the BNPL stock’s outlook 
  • Managing cash burn in the upcoming year will be crucial for the company 

The Zip Co Ltd (ASX: ZIP) share price is in the red.

Again.

Zip shares are down 4.1% in afternoon trade to 91 cents per share.

This follows on a 2.1% loss yesterday, when the buy now, pay later (BNPL) stock released its full-year results for the 12 months ending 30 June (FY22).

And those results were, well, less than stellar.

Despite reporting a record year of revenue of $620 million, up 57% from FY21, the company reported a jaw-dropping $1.1 billion loss from ordinary activities after income. That's 63% more than the sizeable losses it suffered the prior year.

Remarkably, the Zip share price was up for almost all of the day, with gains of 2.3% on the board just 30 minutes before the closing bell.

Then investors appeared to get cold feet. Or perhaps re-examined the number of zeros in the net loss column. Either way, Zip shares lost 4.7% in the final 30 minutes of trade.

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.

Image source: Getty Images

Is the company still overvalued?

Which brings us to UBS analyst Tom Beadle.

Beadle believes that even at today's 91 cents, the Zip share price may be double what it should be.

According to Beadle (courtesy of The Australian):

In FY23, managing cash burn and demonstrating a clear path to profitability will be crucial for Zip. Whilst Zip have announced a range of initiatives designed to reduce cash burn, quantifying their precise impact remains difficult; in our view material uncertainty remains.

Indeed, as The Motley Fool reported yesterday, Zip's cost of sales grew by an unenviable 76% in FY22. The company aims to reduce costs in part by ceasing its operations in Singapore and the United Kingdom. Zip also said it will focus on reducing mounting credit losses.

Nonetheless, UBS' Beadle retains a sell rating on the company, with a 45-cent target for the Zip share price.

Zip share price snapshot

It's been a rocky year for shareholders of the BNPL company, with the Zip share price down a painful 79% since the opening bell on 4 January. For some context, the All Ordinaries Index (ASX: XAO) is down 7% year-to-date.

Motley Fool contributor Bernd Struben 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.

More on BNPL shares

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
BNPL shares

Zip shares crash another 11% this week: What is going on?

Here's what brokers expect next.

Read more »

A happy shopper with a wide mouthed smile holds multiple shopping bags up around her shoulders.
BNPL shares

Experts tip battered Zip shares to deliver over 90% returns

Zip’s battered share price could be hiding a much brighter future.

Read more »

A happy shopper with a wide mouthed smile holds multiple shopping bags up around her shoulders.
BNPL shares

Experts tip Afterpay owner Block shares to deliver over 50% returns

Block offers investors a compelling long-term fintech growth opportunity.

Read more »

Scared looking people on a rollercoaster ride representing volatility.
BNPL shares

Why Zip shares took investors on a wild ride in August

Zip shares made some big moves in August. But why?

Read more »

Woman with a concerned look on her face holding a credit card and smartphone.
BNPL shares

Is it time to get greedy with Zip shares?

The buy now, pay later provider has suffered several strong headwinds over the past 12 months.

Read more »

Part of male mannequin dressed in casual clothes holding a sale paper shopping bag.
BNPL shares

How high do UBS and Macquarie think Zip shares will go?

Even after a jump this week, these shares could be a bargain.

Read more »

person sitting at outdoor table looking at mobile phone and credit card.
Earnings Results

Zip Co reports record FY26 earnings and outlines growth strategy

The buy now pay later provider delivered a 45.7% increase in net profit after tax to $116.4 million.

Read more »

Stressed man in an an office with his eyes closed and phone in his hand, with investing graphs open on two iMacs.
BNPL shares

Zip shares are getting crushed: What's gone wrong?

Zip’s 20 August update will test growth, profits, and credit quality.

Read more »