Why Zip Co Is on a Tear This Week, Zip Share Price Up (ASX: ZIP)

Shares for Zip Co Ltd [ASX:Z1P] are up close to 16% since Monday this week.

Zip Co is a digital and credit payment service looking to disrupt the credit card industry. It runs products like Zip Pay and Zip Money and has a market cap of $1.21 billion.

By the way, if you are interested in investing in small-caps like Zip Co, you can check out our ‘Top Three Small-Cap Stocks’ report here.

Shares for Zip Co were trading at $3.01 on Monday. At time of writing they are trading at $3.49.

What happened to Zip Co’s share price?

Zip Co released their FY19 results today.

The company exceeded expectations logging in $1.1 billion worth of transactions and an 80% growth in customers.

The company is also looking at going global. At the beginning of the week they announced the acquisition of PartPay for close to $50 million. PartPay gives Zip Co a gateway into four countries: New Zealand, the UK, the US and South Africa.

Zip Co also announced they are looking to target small businesses through their new product Zip Biz. With Zip Biz small businesses can make purchases and pay them in installments.

Will Zip Co deliver?

Honestly, it’s hard not to notice the stickers for Zip Pay or its rival Afterpay in storefronts. These ‘buy now pay later’ companies seem to be everywhere!

And, let’s face it, these pay later schemes are soaring because salaries are stagnant.

What makes it attractive is that it is interest free.

How does it work? It is very similar to a credit card except that if you don’t pay the balance in full at the end of the term, you pay a flat $6 monthly fee. Their model consists of charging fees to the stores instead of the consumers.

According to Zip Co, 20% of Gen X-ers are already using buy now pay later options, but Zip Co estimates these companies have less than 1% of the market in the US and UK so far.

So Zip Co has a lot of potential for growth, especially if they start expanding globally. But then again, the company is still making a loss.

And there are a lot of risks. They are fighting against competitors like Afterpay, they have debt and things could turn sour if consumer spending slows more.

At the end of the day, investors need to decide if Zip Co’s growth story is compelling enough to take the risk.

Best,

Selva Freigedo,
For Money Morning

PS: Three ASX fintech stocks taking on the banks (and winning). Download now.


Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up close many of the economic phenomena that worry Port Phillip Publishing readers, like hyperinflation, bank bail-ins and governments burdened with so much debt it cannot possibly be repaid. Every week, she goes through each article, research note and recommendation produced by our experts around the world to give you information on how to build and protect your wealth. Selva packages the week’s best ideas into one easy to read report: Port Phillip Insider Extra.


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