Down 10% in April, is the momentous Zip share price rally over or just paused?

Zip shares gave back some of their eye-popping gains in April. What now for the ASX BNPL stock?

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After an absolutely stellar run higher from the end of October through to the end of March, the Zip Co Ltd (ASX: ZIP) share price reversed course in April.

As for that stellar run, from 1 November through to 27 March shares in the All Ordinaries Index (ASX: XAO) buy now, pay later (BNPL) stock gained an eye-watering 400%.

Or enough to turn a $5,000 investment into a cool $25,000.

April was a different story.

Over the month, the All Ords, which itself gained 14.9% from 1 November to 27 March, fell 2.7%.

The Zip share price fell considerably harder.

The ASX BNPL stock closed out March trading for $1.39 a share. When the closing bell sounded the end of trading for April on Tuesday, shares were swapping hands for $1.25 apiece, down 10.1%.

Which begs the question: Is the momentous Zip share price rally over, or has it just taken a break?

Why has the Zip share price come under pressure?

The biggest share price fall for the ASX 200 BNPL stock came on 16 April. That's when Zip reported its third quarter results.

While many of the results were promising, investors responded to the update by sending the Zip share price down 10.9% on the day to $1.19 a share.

On the positive side of the ledger, Zip reported total transaction volumes (TTV) of $2.4 billion over the three months, up 14.6% year on year.

With revenue margins up by 0.80% (to 9.1%), Zip also enjoyed a 26.6% increase in revenue to $219 million, up 26.6% from the prior corresponding quarter.

Zip's Americas business was a strong point, with TTV in the Americas up by 43.6% year on year.

The company's Australian segment didn't perform quite as well. Despite a 9.3% increase in revenue in its Australian business, Zip reported a 20% decline in transaction volume and transactions in the region.

What now?

As for what lies ahead, first, the massive rally in the Zip share price we've witnessed since November obviously can't be sustained indefinitely.

However, it is worth noting that at the current $1.23 per share, the ASX BNPL stock is trading at a fraction of the $12.35 a share it was valued at in February 2021. To get back to that level, the Zip share price would need to gain 904%.

While that could take some time, it's certainly a possibility.

Interest rates in Zip's core markets of the United States and Australia are among the short to medium-term headwinds to keep an eye on.

With the past two years as our guide, BNPL stocks are quite vulnerable to higher rates.

With inflation proving stubbornly sticky, investors may need to wait until the end of 2024 or 2025 for rates to begin to come down.

If and when central banks do begin a confirmed easing cycle, I expect that will offer some sustained tailwinds for the Zip share price.

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 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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