Why the Zip share price surged (again) on Tuesday

Zip share price retains momentum

The Zip (Z1P) share price has gone parabolic in the last month, rising more than 100% in that period.

It appears likely that it was Zip's quarterly update, released on January 21, that kickstarted this bullish trend.

There, the company ambitiously declared that it had cemented itself as a true global leader in the buy now pay later space.

Does that claim have merit? Let's unpack Zip's quarterly results.

Zip said it made a number of records in the quarter ending 31 December, 2020, including hitting record revenue and transaction volumes.

Here the group said it recorded quarterly revenues of $102.0 million (up 88% on a year-over-year basis), while booking December buy now pay later revenues of $40.2 million (up 94% on a year-over-year basis). In step with that, transaction volumes were strong: with quarterly transaction volumes hitting $1.6 billion, more than doubling on a year-over-year basis.

Beyond that, customers and merchants have continued to flock to Zip’s services: Active customers hit 5.7 million, while active merchants reached 38.5 thousand, by the close of the December quarter.

It’s not surprising that the company saw its revenue accelerate in that period, the December quarter, after all, contains a number of high-profile events for retail-focused companies, including Black Friday sales and Christmas. What investors will likely be keen to see is just how this momentum holds up in the next quarter.

Commenting on those results, Zip's CEO Larry Diamond said:

'We are extremely pleased to deliver another exceptional set of numbers with the quarter really delivering a significant step change for the Company, confirming our position as one of the fastest growing players in the sector.'

Strong results yes, which potentially explains the initial run in the stock during the back-half of January. However, as Zip continues to rise – at the time of writing it was up about 40% in the last 5 sessions – the magnitude of its run, remains somewhat mystifying.

At one point Zip was up ~14% during today's session, hitting an intraday high of $14.53 per share. While it has since traded lower, it was still up 6.24% by the afternoon session.

Key analyst remains downbeat

Despite the market’s joyous response, analysts from Macquarie Wealth Management weren’t impressed with Zip’s quarterly.

At the time they reiterated their Underperform rating and rai $5.35 price target on Zip. Though the noted that Zip's US business Quadpay maintained good momentum and that margins were resilient, the investment bank flagged potential issues stemming from increased competitive pressures within the space, saying:

‘We remain cautious on the competitive landscape in the US and continue to expect the ANZ businesses to weigh on Z1P’s valuation vs BNPL peers.’

Despite all that, the investment bank did raise its price target on Zip due to higher revenue expectations stemming from strong transaction volumes. A target, it should be added, which remains well off Zip's latest traded price.