The Zip share price has halved since late July. What went so wrong?

The Zip Co Ltd (ASX: ZIP) share price has cut in half since late July, however, in recent weeks it has bounced back.

Zip shares have fallen nearly 54% from $1.52 at market close on 28 July to the current share price of 70 cents.

Let’s take a look at what has been going on with the Zip share price.

What’s happening?

Zip shares have had a rough trot overall since July. However, in the past month, the Zip share price has climbed 9%.

Zip had a dramatic fall of 30% between market close on 28 July and 1 August despite no price-sensitive news from the company. US Federal Reserve data showing the economy had shrunk by 0.9% in the second quarter appeared to impact buy now pay later (BNPL) shares including Zip.

Some investors also may have been profit-taking after the Zip share price soared by more than 200% between 1 July and 28 July.

The Zip share price then fell a further 15% in August. My Foolish colleague Cathryn noted at the time this appeared to be driven by investor sentiment. Zip announced financial results on 25 August.

Zip delivered a $1.1 billion loss from ordinary activities after income tax. This was despite record revenue, up 57%, and record transaction volume.

Following these results, UBS tipped the Zip share price to halve. Analysts placed a sell rating on Zip with a 45 cent price target. Analysts said:

In FY23, managing cash burn and demonstrating a clear path to profitability will be crucial for Zip. Whilst Zip have announced a range of initiatives designed to reduce cash burn, quantifying their precise impact remains difficult; in our view material uncertainty remains.

Zip shares fell a further 37.5% between market close on 31 August and 17 October.

Zip lifts

Zip shares have climbed 16% since market close on 17 October and today.

The company’s CEO Larry Diamond predicted Zip could be the “next CBA” in an interview with the Australian Financial Review in late October. He said:

We still believe, in this market, we can be the next CBA. Why not? We have the right leadership, the best technology, and the best people. We are committed to the long term.

On 20 October, Zip shares climbed on the back of a quarterly update. Zip advised group quarterly revenue had lifted 19% year on year, while transaction volume had soared 15%.

Meanwhile, early in November, Diamond provided optimism Zip can achieve positive cash EBITDA by the first half of 2024. He said:

We expect to see the US exiting FY23 cash EBTDA positive and to neutralise the cash burn from our rest of world footprint during the second half of FY23.

We are on track to deliver positive cash EBTDA as a group in the first half of financial year 2024.

News also emerged in October that Diamond had moved to the USA, where he sees a “significant opportunity” for Zip. He said:

There is still a significant opportunity for fintech in the US, as US banks are asleep at the wheel.

Zip share price snapshot

The Zip share price has descended 86% in the last year and nearly 84% year to date.

Zip has a market capitalisation of about $494 million at the current time.

The post The Zip share price has halved since late July. What went so wrong? appeared first on The Motley Fool Australia.

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More reading

• Why did the Zip share price surge 21% in November?
• Could increased BNPL regulation be a positive for Zip shares?
• Zip share price charges higher as BNPL regulation looms large
• Boom! Why has the Zip share price soared 31% in a week?
• 3 ASX All Ordinaries shares having a cracker session on Thursday

Motley Fool contributor Monica O’Shea 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 Zip Co. 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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