Many investors will remember the buy now pay later craze during the pandemic. Zip Co Ltd (ASX: ZIP) shares not only made it past through that murky period, but now sit comfortably amongst the ASX 200.
Zip shares have enjoyed an impressive 147% rise over the last 6 months.
Following this bull run, Macquarie has now initiated coverage on Zip shares, placing an attractive rating on the BNPL shares.
Here's what was behind the optimism.
US growth for Zip
Macquarie's report said Zip's investment appeal is driven by its US segment growth. The broker said Zip is currently outpacing its peers, with TTV growing >40% annually and a significant opportunity to acquire new customers in an underserved market.
Macquarie also highlighted that Zip differentiates itself through a focus on consumers not well served by traditional credit, innovative product offerings, an expanding merchant network, and strategic partnerships with major platforms Stripe and Google.
These partnerships are accelerating merchant onboarding and improving customer engagement, strengthening Zip's competitive position.
Zip represents an attractive opportunity, delivering rapid TTV growth, expanding operating leverage, robust earnings growth, with growing customer base and continued product innovation.
Australia and New Zealand turnaround
Macquarie also noted the recovery for the ANZ market.
Zip first emerged in the ANZ market with an active customer base of ~10% of the Australian adult population.
Macquarie said that whilst the ANZ segment experienced some volatility between 2022 and 2023, the introduction of new management, revision of strategy, and reinvestment enabled a turnaround.
Key ANZ operating metrics turned positive in FY25, driven by product innovation and momentum, improved credit policies and increased customer engagement.
Now accounting for ~20% of the group, ANZ's improving portfolio yield and excess spreads, ongoing operating discipline and continued product innovation are expected to drive sustainable future growth.
Outperform rating for Zip shares
Macquarie has initiated coverage on Zip shares with an outperform rating and $4.85 target price.
At the time of writing, Zip shares are trading at roughly $4.14 each.
Based on these prices, Macquarie sees an upside of approximately 17.15%.
The optimism is driven by four main catalysts:
- US growth
- New customer acquisition
- Use of Stripe & Google partnerships to scale merchant networks
- Further penetration of in-store spend
Elsewhere, valuations also suggest Zip is trading below fair value.
TradingView has a 12-month price target of $5.41, and online brokerage platform Selfwealth lists the current stock price as undervalued by 34.1%.
