Why is the Zip share price trailing the ASX 300 on Friday?

The Zip Co Ltd (ASX: ZIP) share price is down 3.57% today to 67.5 cents amid a sea of red for ASX fintech shares across the market.

This also means that Zip is trailing the S&P/ASX 300 Index (INDEXASX: XKO), which is down just 0.73% in afternoon trade. Zip is also underperforming the S&P/ASX 200 Financials Index (ASX: XFJ), which is falling 1.41%.

Some notable mentions of other fintech shares feeling the pain today include:

• Hub24 Ltd (ASX: HUB), down 2.61%
• Block Inc (ASX: SQ2), down 4.11%
• Sezzle Inc (ASX: SZL), down 5.05%
• Money3 Corporation Limited (ASX: MNY), down 3.35%

My Fool colleagues in the US also reported that fintech shares took a beating in their part of the world yesterday afternoon.

An explanation was also provided for why this might be happening, which applies equally as much to ASX BNPL shares such as Zip. Let’s cover the highlights.

What’s going on?

The main culprit for the decline in fintech shares in US trading yesterday was speculated to be the spectre of further interest rate hikes and recession fears, followed by hedge funds liquidating their positions in fintech companies, the article said.

US jobless claims came in lower than expected on 29 September, which reflects a “very tight job market” and contributes to “sticky” inflation. This has stoked concerns that the Fed will continue with its course of action of getting inflation under control by raising interest rates further, the article said.

These headwinds make ‘risk-free’ investments such as US treasury notes more attractive, considerably helped by the fact that the 10-year treasury yield reached 4% in US trade on Wednesday.

The valuations for tech stocks such as Zip are also battered by higher interest rates from another angle, as they compress the companies’ present value of future cash flows, which is typically forecasted years into the future.

Zip, which reported a $1 billion loss for FY22, could therefore be seen as a risky investment in a highly uncertain environment, which adds selling pressure to its share price.

Zip share price snapshot

The Zip share price is down 84% year to date and 90% over the past 12 months. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down almost 13% and 11% over the same time periods.

The company has a market capitalisation of around $488.93 million.

The post Why is the Zip share price trailing the ASX 300 on Friday? appeared first on The Motley Fool Australia.

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More reading

• Why did the Zip share price jump 4% today?
• How does Zip plan to become a cash flow positive ASX company?
• These are the 10 most shorted ASX shares
• Why the ‘outlook presents challenges’ for Zip shares: expert
• Why is the Zip share price sinking 6% today?

Motley Fool contributor Matthew Farley 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 Block, Inc., Hub24 Ltd, and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended Block, Inc. and Hub24 Ltd. 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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