It’s been a tough 12 months on the ASX for the buy now, pay later company…
The post Here’s why the Zip (ASX:Z1P) share price is underperforming the tech sector over the past year appeared first on The Motley Fool Australia. –
The Zip Co Ltd (ASX: Z1P) share price has been drifting since this time last year. This comes despite the buy now, pay later (BNPL) company enjoying a transformational 12 months as a global player in the industry.
However, in the past 12 months, Zip shares have made little headway, registering an increase of just 4%. In comparison, the S&P/ASX All Technology Index (ASX: XTX), the index has risen 35% over the same time frame.
At yesterday’s market close, Zip shares finished the day down 2.48% to $6.69. They have not moved in early trade today.
What’s going on with Zip?
Late last month, Zip provided investors with its full-year results for the 2021 financial year, highlighting strong numbers. However, the Zip share price sunk on the results.
The company’s revenue jumped 150% over the prior corresponding period to $403.2 million. Transaction volumes surged 178.5% to $5.8 billion, while both active customers and active merchants accelerated 247.5% and 109.4%, respectively.
While the top-line results were a Herculean achievement, Zip posted a widening FY21 loss after tax of $652.5 million. In FY20, the BNPL company recorded just a $20.6 million loss.
Zip wrote off $74.5 million in bad debts during the financial year, up from $27.8 million in the previous financial year.
In addition, marketing expenses rocketed 649.5% to $71.2 million as the company launched into new locations.
But the biggest expense came from the group’s share-based payments, jumping 125.1% to $142.8 million. The decision to attract, reward and retain “Zipsters” through a combination of short and long-term incentives weighed on the bottom line.
In a further possible blow to the Zip share price, the BNPL competition is beginning to ramp up as more entrants come into the industry.
PayPal Holdings Inc (NASDAQ: PYPL) recently acquired Japanese BNPL company Paidy to fuel its own growth.
Unfortunately for Zip, a rush of new direct players aiming to win global market share could be a concern.
National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) have entered the BNPL space. And just this week, Suncorp Group Ltd (ASX: SUN) partnered with Visa Inc (NYSE: V) for a new BNPL solution.
Zip share price summary
It has been a whirlwind year for Zip investors. The company’s shares rocketed to an all-time high of $14.53 in February, before quickly plummeting in the days after.
Ever since, the Zip share price has moved in circles, failing to gain traction despite achieving record revenue growth.
Zip commands a market capitalisation of around $3.7 billion, and has more than 562 million shares on its registry.
Should you invest $1,000 in Zip right now?
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, PayPal Holdings, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.