It's been another brutal start to the week for this ASX financial stock. Zip Co Ltd (ASX: ZIP) shares slipped another 6.2% to $1.48 at the time of writing.
That pushes its total year-to-date loss to a staggering 55%.
By comparison, the S&P/ASX 300 Index (ASX: XKO) has lost 3.9% so far this year.
Image source: Getty Images
Modest profit projections
The pain isn't new — over the past 12 months, Zip has been battered by market headwinds, regulatory scrutiny, and investor jitters.
The half-year results released last month triggered the biggest single drop, with the ASX financial stock tumbling 34% on concerns about modest profit projections.
Zip is a homegrown fintech innovator, best known for its buy-now-pay-later (BNPL) offerings. It allows customers to split purchases into interest-free installments, while offering merchants faster access to cash and analytics on spending behavior.
The platform has been widely adopted by Australian consumers, but rising competition and a cooling economy have put pressure on growth and margins.
Increasing revenue per user
Despite the rough patch, Zip isn't standing still. Management of the $2 billion ASX financial stock is focused on expanding its product suite beyond core BNPL offerings, including digital wallets, credit products, and business financing.
The goal is to increase customer engagement and revenue per user. The company is trying to address the very concern that spooked investors during the half-year results — namely, the pace of profit growth.
One of Zip's key strengths is its brand recognition and tech infrastructure. The platform has millions of users and a growing merchant network, which creates a network effect that competitors find hard to replicate.
By leveraging this base, Zip has the potential to cross-sell new services and diversify revenue streams, potentially driving a recovery in both earnings and investor sentiment.
Consumer debt concerns
That said, risks remain for the ASX financial stock. The fintech sector is under regulatory scrutiny, and BNPL players have come under the microscope amid concerns over consumer debt.
Rising interest rates and tighter credit conditions could further dampen adoption and usage. With the share price of the ASX financial stock sitting near 12-month lows, any stumble in execution or softer-than-expected earnings could prolong the decline.
What next for the ASX financial stock?
From a valuation perspective, Zip now trades at a significant discount relative to its historical highs, which could make the ASX financial stock attractive to long-term investors willing to ride out volatility. If management can successfully execute on its growth initiatives and reassure the market about profit trajectory, there's room for a strong rebound.
Analysts are optimistic, noting that the company's technology, brand, and customer base are durable competitive advantages. Even if near-term earnings remain challenged.
The average price target is $4.21. That's about 184% upside — nearly triple its current share price.
