Why did Zip’s stock price drop 6% on Tuesday?

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The Zip Co Ltd (ASX: ZIP) The stock price is going through a rough patch today. That’s down around 6% in what is proving to be a tough day for some companies in the buy now, pay later (BNPL) sector.

It comes on a day when, at the time of this writing, the S&P/ASX 200 Index (ASX:XJO) is up 0.6%.

One of the main things Zip investors can focus on is that the Sezzle Inc. (ASX:SZL) the stock price is currently down about 10%.

For investors who haven’t seen it, Sezzle released its FY22 half-year result to investors.

Although Sezzle and Zip are different companies, they operate in the same industry and investors may be able to make comparisons and guesses.

What did Sezzle report?

There were a number of different things Sezzle said.

He said underlying merchant (UMS) sales increased 10.6% to $869.6 million, active merchants increased 18.1% to 47,642, active consumers increased 18.2% to 3.4 million, repeat usage improved 193 basis points to 93.50%, and total revenue increased 6.5%. at $56.9 million.

In the second quarter of 2022, the company ceased its payment processing activities in India. It is also exploring the potential sale of its European and Brazilian businesses.

The company stressed that its operations depend on consumer transactions with merchants, which in turn can be affected by changes in general economic conditions.

He noted that the retail sector could be affected by factors such as unemployment, interest rates, consumer confidence, economic recessions, slowdowns or a prolonged period of uncertainty or volatility.

Sezzle also pointed out:

In weaker economic environments, consumers may have less disposable income to spend and therefore may be less likely to purchase products using our services and bad debts may increase due to non-repayment of loans taken out on the platform Sezzle. Our industry is also impacted by numerous domestic and international finance and consumer protection regulations, and the outlook for new regulations, as well as the cost of compliance with those regulations, has an ongoing impact on our operating results. and our financial performance.

Much of this comment could certainly apply to Zip as well.

Expert Thoughts

Despite continued growth in the fourth quarter of FY22, pundits are negative on Zip’s stock price. In this quarterly update, Zip said its quarterly revenue grew 27% year-over-year to $160.1 million, customers grew 64% to 12 million, and merchants increased by 77% to reach 90,700.

Zip’s cash trading margin was 2.4%. He also said his losses in the United States and Zip were improving.

Citi rates Zip as a sell, with a price target of $0.70. He expects less growth from the business.

Broker UBS also rates Zip as a sell with a price target of just $0.45. This implies a possible drop of 60%.

Zip Stock Price Overview

Despite today’s decline, Zip’s stock price is up about 80% in the past month.

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