Can Zip shares reach $1 in 2024?

Should investors buy now, or wait till later?

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The Zip Co Ltd (ASX: ZIP) share price has done badly in the last 12 months – it's down 32% in the past year. Could 2024 be a much better year for the ASX buy now, pay later stock?

It's suffering from a number of different things like a weaker consumer environment, high(er) interest rates and much more regulator attention.

It is difficult to predict what's going to happen in a relatively short time period like one year, but some analysts are going to have a view of whether the business is good value and what could happen.

What could impact Zip shares in 2024?

The broker UBS noted that in the first quarter of FY24, revenue yields were stronger than expected, particularly in Australia and New Zealand. However, there were slower than expected net active customer additions and weaker total transaction value (TTV) per customer spending in ANZ.

However, collectively, those changes led to UBS expecting faster-than-expected positive cash earnings before tax, depreciation and amortisation (EBTDA) outcome in FY24 of $13 million, compared to the previous estimate of negative $13 million at the cash EBDTA level.  

UBS said that, overall, it's "constructive on Zip's turnaround over the past 12 months to exit unprofitable regions, lift revenue yields, improved profitability and liability management."

But, the broker did warn there is a potential downside risk for Zip shares because of potential weakening in consumer retail spending in Australia and New Zealand.

UBS suggested macro uncertainty is "likely to continue to remain a headwind for total TTV growth, given Zip's exposure to categories in Australia (department stores and household goods) and in US (fashion and clothing) which are more vulnerable in the face of declining health of the consumer."

But, UBS suggested (in October) that Zip's valuation adequately priced in the macro risk.

Financial forecasts for FY24

UBS is currently forecasting for FY24 that Zip could make $838 million of revenue, but make an earnings before interest and tax (EBIT) loss of $71 million and a net loss after tax of $60 million.

When will Zip start making a profit? UBS doesn't think it's going to happen until FY26 when it's projected to make a net profit after tax (NPAT) of just $10 million. FY25 is forecast to see a net loss of $38 million.

Net profit isn't expected to get much better – FY27 is expected to see net profit of $21 million and FY28 is expected to see net profit of $23 million.

Interestingly, the broker UBS has pencilled a dividend per share of 1 cent in FY28, which would be a dividend yield of 2.1%.

Zip share price target

A price target is where the broker thinks the share price will be in 12 months.

UBS' price target on Zip is 36 cents, which is actually 25% lower than where it is today. But, at the time UBS announced its target, it was around 10% higher than the Zip share price which has gone up 70% since the end of October 2023.

Motley Fool contributor Tristan Harrison 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 Zip Co. 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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