The Zip Co Ltd (ASX: Z1P) share price has given back all of its post-QuadPay acquisition gains in recent months and almost halved since its record all-time high of $10.64 back in August.
Its shares jumped as much as 6% on Thursday following a successful $120 million capital raising. However, the discount price and broader weakness in the market is likely to blame for its 3.7% slump today, at the time of writing.
With its plans to accelerate its growth and explore opportunities for international exposure, could this be the saving grace for the Zip share price moving into 2021?
Equity raising for growth
On Wednesday, Zip announced a capital raise of up to $150 million to bolster its US growth and UK expansion, explore new markets and ramp up its product expansion. The capital raising will have an offer price of A$5.34 which represents a 4.1% discount to its last traded price of $5.57 on 16 December, 2020.
The next day, it announced the successful completion of the placement, raising $120 million of growth capital. Following the completion of the placement, eligible shareholders will be given the opportunity to subscribe for new shares under a share purchase plan for a raise of up to $30 million.
Capital to accelerate growth and enter new markets
The proceeds from the capital raising will be used to accelerate the company’s growth on all fronts. This is the breakdown of its allocation of funds.
58% of the raise or $85 million will be allocated to the US market where the company seeks to continue to capitalise on its QuadPay acquisition. Here, Zip will seek to accelerate its growth including customer acquisition, increase app usage and merchant partnerships. The US growth story so far has been accelerating, with November transactions more than tripling November 2019. With an addressable retail market of more than $5 trillion, Zip is eager to continue to capture market share.
10% or $15 million will be used for the UK market where it hopes to establish greater scale, partnerships and rollout additional product innovations. The UK has a $600 billion addressable retail market and largest ecommerce market in Europe. This represents an exciting opportunity for BNPL, which is in its early days in the UK.
24% or $35 million will be allocated to its new division, “new markets” to execute across product, engineering, regulatory and growth functions. A key element of its new markets division is undertaking strategic investments in high-performing, culturally aligned existing players to quickly gain access to new geographies and acquire new customers.
There has been a lack of further international expansion for ASX BNPL players across the board, besides the likes of Afterpay Ltd (ASX: APT). But with this announcement, Zip has made two new investments including Spotii, a leading BNPL player headquartered in the United Arab Emirates and focused on the Gulf Cooperation Council region, and a non-binding agreement with Twisto, a leading payments platform operational in Czechia and Poland with the ability to passport licensing across the EU.
Finally, 8% of $12 million will be used to find the continued growth of the ANZ region with new investment in product expansion.
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Returns as of 6th October 2020
More reading
- Here’s how ASX buy now, pay later (BNPL) shares have performed in 2020
- ASX 200 rises on Thursday
- Why Codan, Pro Medicus, Uniti, & Zip shares are storming higher
- ASX 200 up 0.7%: Zip capital raising, A2 Milk trading halt, Sydney Airport dividend update
- Here’s why Zip (ASX:Z1P) launched a $150 million capital raising
Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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