The Zip share price is down 90% in 2022. Why I won’t be buying

A young boy with a sombre face looks down at the zip fastener at the bottom of his jacket as he concentrates on unfastening the clasp.A young boy with a sombre face looks down at the zip fastener at the bottom of his jacket as he concentrates on unfastening the clasp.

What a rollercoaster ride it has been for the Zip Co Ltd (ASX: ZIP) share price.

From reaching an all-time high of $14.53 in February 2021, the buy-now pay-later (BNPL) shares are now trading at 53 cents. That represents a massive 96% decline in just 16 short months.

And even when you look at year-to-date, its shares are down 90%. This means the share price would need to increase by 900% to break even.

While you may think Zip shares are too cheap at current valuations, here’s why I won’t be buying at all.

Investors fall out of love with the BNPL industry

The once gleaming BNPL industry was popular among investors as consumer trends shifted during the pandemic.

Government stimulus packages among record low interest rates drew an insatiable appetite for shoppers.

However, as quickly the BNPL market soared, it has now almost turned to dust.

To put that into perspective, Zip was once valued more than $6 billion at its height. More than retail giant, JB Hi-Fi Limited (ASX: JBH).

Today, the BNPL company has a market capitalisation of around $371.49 million. A staggering fall of 94%.

Why I won’t be a buyer of the Zip share price

With so many market entrants to the BNPL sector, it has become increasingly crowded.

Recently, tech behemoth Apple Inc. (NASDAQ: AAPL) also signalled its move into the BNPL space.

Titled “Apple Pay Later”, the service offering doesn’t charge any interest or late payment fees to customers.

In addition, a number of major Australian banks such as Commonwealth Bank of Australia (ASX: CBA) have promoted their own offering.

Furthermore, Zip is experiencing credit losses outside its target range. With the latest figures at around 2.6% of total transaction volume, this may increase due to the current macroenvironment.

Interest rates hikes due to soaring inflation levels are leading some economists to predict a recession in 2023.

Essentially, what this means is that consumers are less likely to spend on discretionary items when interest rates are high. The cost of debt such as credit cards, personal loans and mortgage will require extra payments, affecting consumer spending habits.

The post The Zip share price is down 90% in 2022. Why I won’t be buying appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended 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 Scott Phillips.

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