What is behind the bounce in the Zip Co share price?

Posted: 23 September 2021 12:39 pm
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Shares in BNPL provider Zip Co have slipped more than 13% in the last 6 months.

Shares in buy now pay later operator Zip Co Ltd (ASX: Z1P) are pressing ahead for their second session of gains, and are also among the most traded shares on the ASX on Thursday 23 September.

At the time of writing, the stock was already up nearly 5.5% to $6.86, on top of the 4% gains in the previous session.

What is driving up the Zip stock price?

The latest catalyst for the change in trajectory of Zip Co’s share price is the announcement that it is entering the high potential Indian market.

In news that is being cheered by investors, Zip has agreed to take a minority stake in India-based BNPL operator ZestMoney for US$50 million.

The investment in the Bengaluru-based fintech ZestMoney marks Zip Co’s entry into a market with a massive young demographic, which is gravitating more towards cashless payments and has a huge growth potential.

"With deep partnerships with online and offline merchants and lending partners, ZestMoney is poised to accelerate growth as the market develops," Zip chief executive officer Larry Diamond said in a statement.

“With more people using digital payments and online shopping, ZestMoney can positively impact hundreds of millions of lives in the coming years.

Zest­Money already has a user base of 11 million, eclipsing Zip's existing global customer base of 7.3 million. It also has partnerships with more than 10,000 merchants across India, with more than 75,000 points of presence in physical stores.

ZestMoney co-founder and CEO Lizzie Chapman noted the huge opportunity in the Indian market.

“We are thrilled to have Zip come onboard for the next phase in our journey of powering affordability in the lives of Indian consumers,” Chapman said.

“The shift towards Pay Later solutions is a global phenomenon and represents young digital consumers looking for transparency, honesty and no hidden charges in financial products.

Zip said it had negotiated terms to increase its shareholding in ZestMoney over time and has also secured a seat on its board as well as the right of approval over “specific reserved matters”.

Global push

The latest investment is part of the Australian BNPL player’s plan to tap new growth markets and add investors at a time when the COVID-19 pandemic has pushed young shoppers to look for easier access to credit amid a boom in online shopping.

The Australian company kicked off the expansion strategy last year with the acquisition of New York-based QuadPay for $403 million, giving it a strong foothold in the world’s biggest retail market. It has already delivered strong sales and transaction growth.

In recent months, Zip expanded its international presence further by lifting stakes in UAE-based Spotii Holdings and Europe-focused Twisto Payments to boost operations in Europe and the Middle East, among the fastest-growing global ecommerce regions.

The latest deal opens up a market that is forecast to achieve BNPL payment volumes of US$300 billion by FY 2026, driven by changing spending trends and increased penetration of online shopping. Zip says there is potential for the overall Indian BNPL user base to reach between 80 and 100 million users by FY 2026.

Shares in Zip Co have performed poorly over the past 6 weeks, particularly since it reported a burgeoning full year loss of $653 million, and surging marketing costs.

The stock is down 13% in the last 6 months and shareholders must be hoping the latest news changes investor sentiment in the company.

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