The Zip Co Ltd (ASX: Z1P) share price has soared 64.5% in June. The company is undergoing a $200 million capital raising to acquire United States-based buy now, pay later (BNPL) provider, QuadPay. But is the Zip Co share price getting too expensive? 

Q3 highlights 

Zip Co provided the market with an update for the month ending 31 May 2020. The company highlighted a 78% year on year increase in monthly revenue and a 63% increase in active customers to 2.1 million. Furthermore Zip Co reported a 46% increase in active merchants to 23,600. I think these numbers are pretty impressive. I also think the company’s strong performance should continue due to the change in consumer behaviour resulting from COVID-19. 

Zip Co’s business update commented on the shift away from cash to digital payments that has occurred throughout the pandemic. The company also anticipates eCommerce penetration to remain at elevated levels post COVID-19 as more consumers gain familiarity with shopping online and retailers invest significantly in this space. These trends represent considerable tailwinds for BNPL and digital payment operators like Zip Co.

QuadPay highlights 

I believe the QuadPay acquisition is a game changer for the Zip Co share price. This is a compelling investment proposition that transforms Zip Co from a domestic BNPL player to a global BNPL leader. Post completion, the combined group will have operations across Australia, New Zealand, the US, the United Kingdom and South Africa. Zip Co will have a combined annualised total transaction value of $3.0 billion and annualised revenue of $250 million. It will also boast 3.5 million customers and 26,200 merchants. 

The QuadPay acquisition will immediately elevate all of Zip Co’s key reporting metrics and its existing scale. It will also ramp up the company’s growth potential in the world’s largest retail market. QuadPay currently has an existing customer base of 1.5 million, over 3,500 merchants and annualised revenue of $70 million for the quarter ending March 2020. QuadPay allows customers to split their purchase into 4 instalments spread over 6 weeks, interest free. The merchant gets paid upfront with risk and fraud liability absorbed. What makes QuadPay unique is its ‘Anywhere App’ that enables customers to pay in instalments in store or online at any merchant.

Zip Co’s acquisition will be funded with $100 million in convertible notes and up to $100 million in warrants. This will mean Zip Co shares will be progressively diluted by $10 million every six months as the notes convert into shares. The capital will be provided by an affiliate of Susquehanna International Group, one of the largest privately-held financial services firms in the world. The company has an established track record of investing in high-growth companies including the parent company of Tik Tok, Bytedance. 

Foolish takeaway 

I believe QuadPay is a transformational acquisition that takes the growth potential of the Zip Co share price to the next level. Zip Co has entered the largest retail market in the world with a genuinely innovative product. While investors could wait for its share to possibly become cheaper, I would certainly be watching it closely. 

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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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Earlier today the Afterpay Ltd (ASX: APT) share price continued its meteoric rise and stormed higher again.

The payments company’s shares rose 3% to hit a record high of $59.64.

Why is the Afterpay share price rising again?

There have been a couple of potential catalysts for Afterpay’s share price rise on Thursday.

The first is a broker note out of Ord Minnett this morning which reveals that its analysts believe the buy now pay later provider’s shares can go higher from here.

According to the note, the broker has retained its buy rating and almost doubled its price target to $64.70.

It believes that Afterpay could end the financial year with almost 10 million active customers.

Apple Pay integration.

Another possible catalyst is the company’s integration with Apple Pay.

Although it has been a couple of weeks since the company actually partnered with Apple, it was only today that it emailed customers to advise them of the integration.

This appears to be good timing by the company ahead of its push into the U.S. bricks and mortar retail market.

While the Afterpay app is easy enough to use for transactions, it is still no comparison to using Apple Pay, which is effortlessly simple. I feel making the process as easy as possible when entering the offline U.S. market could be key to increasing its adoption and usage.

Is the Afterpay share price in the buy zone?

I still believe Afterpay is a buy for investors that are intending on holding its shares for the long time.

Given the increasing popularity of the payment method, its massive opportunity in a $5 trillion U.S. retail market, and possible expansions into mainland Europe and Asia in the future, I feel Afterpay has the potential to grow enormously over the next decade and become a real force in the payments industry.

Though, given its high valuation, I think it would be prudent to limit an investment to just a small part of a balanced portfolio.

More reading

• ASX 200 down 1.3%: Big four banks tumble, Afterpay tipped to go higher
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• Has the Afterpay share price become too expensive to buy?
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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If you’re just starting out with investing, you may not have tens of thousands of dollars to invest into the share market.

But I wouldn’t let that put you off starting your investment journey. This is because even small investments can grow into something meaningful over a long enough timeframe thanks to compounding.

For example, $2,500 invested in the share market each year for 20 years and earning a 10% return would grow into almost $160,000.

And if you’re able to increase your level of investments as the years go by and your earnings increase, you could grow your wealth materially more.

But which shares should you start with? I think you would be best looking long term and at companies which have the potential to grow their earnings strongly.

Two that tick a lot of boxes for me are listed below. Here’s why I would invest $2,500 into them:

Nearmap Ltd (ASX: NEA)

I think this growing aerial imagery technology and location data company could be a great place to invest $2,500. Nearmap provides high resolution aerial imagery, city-scale 3D datasets, and integrated geospatial tools to businesses. It has a massive opportunity in a highly fragmented market and looks well-placed to grow it market share significantly over the next decade thanks to its high quality product offering.

Pushpay Holdings Group Ltd (ASX: PPH)

Another ASX share to consider investing these funds into is Pushpay. It is a donor management platform provider which is well-positioned to benefit from the digitisation of giving and the shift to a cashless society. It is aiming to capture a 50% share of the medium to large church market in the future, which represents a US$1 billion opportunity. If it delivers on this target, which I suspect it will, then it should drive strong earnings growth over the next decade.

More reading

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• $3,000 invested in these 2 shares could make you a fortune over the next 10 years
• The top ASX growth shares I would buy for the 2020s

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia has recommended Nearmap Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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