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What is pulling down the Zip Co share price today?


Shares in BNPL provider Zip Co have risen over 25% in the last year.

Buy now pay later operator Zip Co Ltd (ASX: Z1P) is among the top losers on the ASX in an otherwise strong market on Thursday. Zip shares were trading 5.5% lower at $7.16 at the time of writing.

Why is the Zip stock price dropping?

The sharp decline on Thursday comes after the company released its quarterly update.

On the positive side, Zip delivered a record performance, with total transaction volume (TTV) more than doubling to $1.8 billion in the 3 months to 30 June, while quarterly revenue also doubled to $129.9 million.

Zip also saw revenue more than double at its key QuadPay business in the United States to $64.3 million. Revenue rose 39% in the Australia-New Zealand region and was modestly higher at its nascent UK business.

“We are now a truly global player with a presence in 12 markets, and this is a real point of difference as we target global retailers and fulfil our mission to become the first payment choice everywhere, every day,” Zip Managing Director Larry Diamond said.

However, investors seem to be focused on the fact that Zip Co’s growth is slowing quarter on quarter.

Slowing growth

Zip’s June quarter revenue was up only 13% over the previous quarter. Its revenue to TTV ratio, a key metric for buy now pay later operators, has also slipped to 7.2% compared to 7.65% in FY 2020.

Analysts are also disapproving of the company’s net bad debts rising to 1.82% from 1.78% in the previous quarter, while the arrears rate is up 1.78% from 1.2% in the third quarter, likely indicating higher net bad debts to come.

Those are not pleasing numbers for a company that faces stiff competition in the BNPL space. The outlook has been further clouded by technology giant Apple readying for a push into the sector, while global payments behemoth PayPal this month expanded its own buy now pay later service to Australia.

As a result, short positions on Zip Co had jumped to their highest level this year, Reuters reported on Thursday, quoting data from Australia's securities regulator. Shorts amounted to about 10.5% of the total shares on issue, far higher than those on larger rival Afterpay, which stood at 1.5%.

Still, Z1P shares have managed to rise over 25% in the past 12 months and investors would be hoping that momentum continues.

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