Stock of the day: Zip

(AI video summary)

This video was created on 7 March for IG audiences by ausbiz.

ASX code: ZIP

Zip Co's market position and share price challenges

Zip Co shares have declined approximately 30% since the start of 2025, including a 3% drop in today's session. This comes as Swedish rival Klarna prepares to file for its initial public offering (IPO), reportedly seeking to raise at least $1 billion.

Despite the recent share price weakness, Zip was one of the "comeback kids" of the previous year, delivering substantial returns for investors who backed the buy now, pay later (BNPL) provider.

Strong growth fundamentals despite market sentiment

Analysts remain confident in Zip's investment thesis, pointing to several positive factors:

1. Impressive US growth: Zip's American operations continue to expand at over 40%, providing a significant growth engine for the company in the world's largest consumer market
2. Improved domestic profitability: the Australian business is becoming more profitable as management focuses on optimizing operations and returns
3. New market opportunities: Zip's expansion into additional segments shows promising early results, though specific details weren't elaborated

Potential concerns and balancing factors

While most aspects of Zip's recent performance update were positive, several potential concerns emerged:

1. Increased cash margin: the company reported a rise in its cash margin, which could impact profitability
2. Expanded bad debt provisions: Zip has needed to increase provisions for bad debts, reflecting potential challenges in the consumer credit environment
3. Higher than expected capital expenditure (CapEx): the company's investment in its platform and capabilities exceeded market expectations

Despite these concerns, the company's overall results were in line with consensus expectations. Analysts suggest that the current interest rate environment—with rates expected to fall rather than rise—creates a favorable backdrop for non-bank lenders like Zip.