There's not much you can buy for 61.5 cents these days. Though, that amount of pocket change could see you owning a share of buy now, pay later (BNPL) company Zip Co Ltd (ASX: ZIP).
Shares in the one-time market darling and former S&P/ASX 200 Index (ASX: XJO) constituent are currently trading for 96% less than their all-time high of $14.53 each, clocked in 2021.
So, what went wrong for the BNPL stock, and could things improve from here? Let's take a look.
What sent the Zip share price spiralling?
It's been a rough few years for the ASX BNPL staple. Soaring inflation, resulting interest rate hikes, and concerns about bad debts all took their toll over the course of 2021 and 2022.
Higher interest rates also saw the emergence of a noticeable distaste for unprofitable tech outfits. While Zip technically isn't a tech share, it tends to trade in line with the broader tech sector.
And, boy, did the tech sector suffer last year. The S&P/ASX All Technology Index (ASX: XTX) plummeted 33% in 2022. Meanwhile, the Zip share price tumbled a whopping 88%.
But could the worst be behind it? Let's take a look.
Are things getting looking up?
The Zip share price has bounced back from a low of 43.5 cents in recent months, and I think it has the potential to continue rising.
Management is touting its growth strategy and profitability aspirations. And such aspirations appear to be showing up in its earnings.
The company's revenue lifted 12% year-on-year last quarter, coming in at $188 million, while it posted a record $2.7 billion in transactions. Its bottom line was also helped by a reduction in cash burn, brought about by the simplification of its business.
Meanwhile, Zip announced its United States leg achieved cash earnings before interest, tax, depreciation, and amortisation (EBITDA) profitability.
Not to mention, it may well be fully funded through to cash EBITDA profitability.
That's particularly good news as potential capital raising activities could dilute shareholders' ownership – thereby likely draining the value of their investment.
Of course, all that points to a potential rebound in the Zip share price.
Are Zip shares worth the risk?
However, I doubt the current economic environment will allow it to return to its previous heights. Particularly as struggling ASX BNPL players may have put a spotlight on the sector.
Openpay Group Ltd (ASX: OPY) entered receivership earlier this week while Laybuy Group Holdings Limited (ASX: LBY) is also attempting to abandon the ASX, saying — among other things — that the market appears to have failed to appropriately value its business.
Not to mention, the factors seemingly dragging it down in recent years haven't abated yet.
For these reasons, I personally won't be taking the risk on the Zip share price for the time being. Though, I expect the future could be brighter for the stock.
