Zip share price rises as investors buy now on takeover talk

Investors are buying now on rumours of a takeover payoff later.

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The Zip Co Ltd (ASX: ZIP) share price is currently up 4% on rumours of possible takeover interest for the buy now, pay later business.

What do we know?

According to reporting by The Australian, there is "talk in the market" that Zip may be getting takeover interest following its turnaround from being loss-making to now making operating profits.

The newspaper pointed out a number of smaller competitors have collapsed and some of its larger competitors have exited the buy now, pay later market including Apple, Goldman Sachs and PayPal.

On top of that, Zip's main rivals have increased their fees and are being rational with their business choices.

The Australian reported a Zip spokesman said the ASX share has not received any takeover approaches, but "multiple sources" have suggested at least one possible suitor is eyeing up Zip, and it is "gaining interest".

Who might be interested in buying Zip shares?

The Australian suggested large offshore competitors could be interested in buying Zip, such as Klarna.

Some ASX bank shares may also be interested. The newspaper said Westpac Banking Corp (ASX: WBC) leader Peter King wants to make acquisitions. As some investors may know, Westpac used to own a substantial stake in Zip.

ANZ Group Holdings Ltd (ASX: ANZ) may also decide to embark on some acquisition activity if it isn't allowed to buy the banking division of Suncorp Group Ltd (ASX: SUN).

Why would these ASX bank shares want Zip? The rationale would be that it could supposedly allow them to gain more exposure to younger Aussies.

Latest update

In the latest update, Zip said it's expecting to report group cash earnings before tax, depreciation and amortisation (EBTDA) of between $29 million to $33 million. It said its revenue margin improved to 8.2%, up from 7.1% in the second quarter of FY23.

Zip also revealed it achieved a cash transaction margin of 3.5%, up from 2.8% in the second quarter of FY23.

Those numbers show that Zip has become a lot more profitable than it was before.

Zip share price snapshot

Over the past six months, the Zip share price has soared 90%.

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 Apple, Goldman Sachs Group, PayPal, and Zip Co. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: short March 2024 $67.50 calls on PayPal. The Motley Fool Australia has recommended Apple and PayPal. 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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