The Zip Co Ltd (ASX: ZIP) share price has fallen more than 40% in 2025 to date, as the chart below shows. Brave investors may be wondering whether this is a good time to invest.
As one of the largest buy now, pay later businesses in Australia and the US, it is quite heavily linked to consumer spending confidence in those two markets. The announcement of tariffs in the US has created investor uncertainty and we'll have to see how it plays out for US household spending.
But, after such a heavy decline of the Zip share price, investors may be weighing up a brave investment. Let's have a look at the latest developments for Zip.
FY25 third-quarter update
For the three months to 31 March 2025, the business reported ongoing strong double-digit growth.
Total transaction value (TTV) grew 35.7% year over year to $3.3 billion and total income grew 26.5% to $278.9 million.
Its revenue margin decreased from 9.2% in the prior corresponding period to 8.6% in the FY25 third quarter because of a higher contribution from the US (which has a lower revenue margin than Australia).
Cash operating profit (EBTDA) rose 219.4% to $46 million, while the cash transaction margin was flat at 3.9%.
Pleasingly, net bad debts reduced to 1.6% of TTV, down from 1.7% in the third quarter of FY24.
The number of customers and merchants also continue to grow. Active customers at the end of the quarter rose by 4.2% to 6.3 million and the number of merchants on Zip's platforms increased 7.2% year over year to 83,300.
Is this the right time to invest in Zip shares?
The broker UBS certainly seems to think so, with a buy rating and a price target of $3.20.
A price target is where the broker thinks the share price will be in 12 months from the time of the investment call. The Zip share price target implies it could almost double in the next year.
UBS said that the FY25 third quarter beat its estimates across all key operating metrics, with US customer growth being a highlight, as well as improving trends in credit performance indicators.
The broker concluded:
Fundamentally the growth story remains intact, in our view, with the key uncertainty for investors remaining the performance of the US business in a more volatile macro environment going forward. Quarterlies from US listed peers may give a clearer read on this in late Apr/early May. Macro aside, the updated guidance for FY25 still looks adequately conservative to see a beat come Aug'25 in our view. While a US recession scenario naturally implies further SP [share price] downside risk, at 16x Cash P/E (FY26e) for a business forecast to grow earnings at a 30% CAGR (FY25-27e), we think significant macro risk is priced in at these levels.
