The stellar rise of Zip Co Ltd (ASX: ZIP) shares that commenced in early April went into reverse in October.
Shares in the S&P/ASX 200 Index (ASX: XJO) buy now, pay later (BNPL) stock closed out September trading for $4.42. When the closing bell sounded on Friday, 31 October, shares were changing hands for $3.91 apiece.
This put Zip shares down 11.5% over the month, well behind the 0.4% gains posted by the ASX 200 over this same period.
Despite that retrace, investors who bought the stock at the recent 7 April closing lows were still sitting on gains of 225.2% at the end of October.
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Why did Zip shares slump in October?
There was no negative news out from the company over the past month. To the contrary, as we'll examine below, investors responded very positively to Zip's first-quarter (Q1 FY 2026) results, which were reported on 20 October.
So, why did Zip shares drop almost 12% over the month?
Well, I believe the company faced headwinds on two fronts.
First, at market close on 10 October, shares were up 304% (or more than quadruple) since 7 April. So, some profit-taking seems logical.
Second, BNPL stocks like Zip have proven very sensitive to interest rates and interest rate expectations. And October saw expectations for interest rate cuts from the RBA in Australia decline sharply amid an unexpected uptick in inflation. While bets for further rate cuts from the US Federal Reserve also got pared back with ongoing concerns over the Trump tariff impacts.
As for the company's performance, well, Zip started off the new financial year in record-setting form.
ASX 200 BNPL stock notches record quarterly earnings
Zip shares closed up 4.3% on 20 October following the release of the company's September quarter results.
Highlights from the three months to 30 September included record quarterly cash earnings before tax, depreciation and amortisation (EBTDA) of $62.8 million. That was up 98.1% from Q1 FY 2025.
And total transaction volume (TTV) of $3.9 billion was up 38.7% year on year.
Pleasingly, net bad debts – always a concern in the BNPL industry, remained steady year on year at 1.6% of TTV.
Investor interest was also piqued with management announcing a doubling of the company's on-market share buyback from $50 million to $100 million.
Looking at what's ahead for Zip shares, CEO Cynthia Scott said on the day:
Following a strong start to the year, we have upgraded our expectation for US TTV growth to be above 40% (in USD) for the year and reconfirm the remainder of our target ranges as previously announced in August.
