Author: therawinformant

The BHP Group Ltd (ASX: BHP) share price is trading lower on Tuesday after announcing a sizeable oil investment.

At the time of writing, the mining giant’s shares are down 0.25% to $36.05.

What did BHP announce?

This morning the mining giant announced that it has signed a membership interest purchase and sale agreement with Hess Corporation to acquire an additional 28% working interest in Shenzi.

Shenzi a six-lease development in the deepwater Gulf of Mexico.

Prior to the agreement, the development was structured as a joint ownership, with BHP owning a 44% interest, Hess holding a 28% interest, and Repsol SA owning the remaining 28% interest.

Should the agreement complete successfully, BHP’s working interest would increase to 72% and immediately add approximately 11,000 barrels of oil equivalent per day of production.

What is BHP paying?

According to the release, BHP and Hess have agreed a purchase price of US$505 million. This remains subject to customary pre and post-closing adjustments.

Management notes that the transaction is consistent with its strategy of targeting counter-cyclical acquisitions in high-quality producing or near producing assets.

And while the company acknowledges that oil prices are at low levels at present because of the pandemic, it continues to believe the fundamentals for oil and advantaged gas will be attractive for the next decade and beyond.

BHP’s President of Petroleum Operations, Geraldine Slattery, commented: “This transaction aligns with our plans to enhance our petroleum portfolio by targeted acquisitions in high quality producing deepwater assets and the continued de-risking of our growth options.”

“We are purchasing the stake in Shenzi at an attractive price, it’s a tier one asset with optionality, and key to BHP’s Gulf of Mexico heartland. As the operator, we have more opportunity to grow Shenzi high-margin barrels and value with an increased working interest,” she added.

More reading

• Top brokers name 3 ASX dividend shares to buy today
• Brokers name 3 ASX shares to buy right now
• Why BHP, Paradigm, Reliance, & SeaLink shares are charging higher today
• Will the Fortescue (ASX:FMG) share price outperform in 2021?
• Is the run over for ASX lithium shares after Tesla’s battery day? 

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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The BNPL sector is becoming an increasingly crowded space as banks, online payment behemoths and competitors scramble for market share. One could argue that the likes of Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) may have already priced in recent geographic expansions, and additional capital raisings might be needed to fund further growth initiatives. While BNPL shares could continue to grow, here is one ASX tech share in the payments space that often goes by unnoticed. 

Pushpay Holdings Ltd (ASX: PPH) 

Pushpay has been a quiet overachieving ASX tech share in light of BNPL stocks that tend to take the limelight. The company provides a donor management system including donor tools, finance tools and a custom community app to the faith sector, non-profit organisations and education providers in the US, Canada, Australia and New Zealand. 

FY20 performance 

Pushpay delivered solid revenue growth with expanding operating margins and operating cash flow improvements in FY20. The company completed the strategic acquisition of Church Community Builder, a US-based, leading provider of church management systems for a total cash consideration of US$87.5 million. It achieved or exceeded all guidance provided to the market over the year, including operation revenue, gross margin and total processing volumes. 

The company is making a significant step towards profitability with operating cash flow increasing 953% to US$23.5 million up from negative US$2.8 million. Likewise, its net profit after tax significantly increased to US$16 million from a loss of US$1.4 million in FY19. Its previous financial year included a one-time benefit arising from previously unrecognised tax losses and deferred research expenditure of US$20.9 million which contributed to the net profit of US$18.8 million in FY19. Excluding the benefit would result in the loss of US$1.4 million in FY19. 

COVID-19 has served as a tailwind for the digital business as client services move online. The company provided an earnings before interest, tax, depreciation, amortisation and fair value adjustments (EBITDAF) of between US$50.0 million and US$54.0 million. This would represent an increase of more than 100% on the prior corresponding period. 

Why Pushpay could be a leading ASX tech share

The shift to digital apps within the faith sector, non-profit organisation and education space has seen an uplift in demand for Pushpay services. The company has already provided an outlook that EBITDAF would more than double against the prior corresponding period and has already transitioned into a profitable business. This is arguably a step ahead of many ASX tech shares, especially the likes of BNPL shares that could be years away from being cash flow positive businesses. 

More reading

• Could the Zip share price be ready to have a crack at $10 again? 
• Why now is a great time to buy ASX shares
• Afterpay vs Zip, which is the better investment?
• You could become very wealthy by investing $1,000 into these ASX shares
• 5 things to watch on the ASX 200 on Monday

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 PUSHPAY FPO NZX and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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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The Baby Bunting Group Ltd (ASX: BBN) share price will be on watch on Tuesday after the release of a trading update ahead of its annual general meeting.

How is Baby Bunting performing?

When Baby Bunting released its full year results in August, it revealed that its comparable store sales growth for the first six weeks of FY 2021 was 20%.

Pleasingly, this morning the company revealed that this strong form has continued into October.

According to its update, Baby Bunting’s financial year to date comparable store sales growth to 2 October was 17%. These figures include its stores in the Melbourne metropolitan region, which have been impacted by lockdowns.

Excluding these stores, Baby Bunting’s comparable store sales growth would have been an impressive 28.5% over the same period.

A key driver of this growth has been the company’s online business. During the first quarter of FY 2021, Baby Bunting’s online sales (including click and collect) were up 126% on the prior corresponding period. Excluding the Victoria region, online sales growth was 92% during the first quarter.

Click and collect has proven to be increasingly popular with consumers in FY 2021. Management advised that click and collect sales grew 233% during the first three months of the financial year.

The positives don’t stop there. The company’s gross margin has continued to widen in FY 2021. At the end of the first quarter, Baby Bunting’s gross margin stood at 37.5%. This compares to a gross margin of 36.2% in FY 2020.

One potential negative is that COVID-19 has impacted the company’s operating costs.

It commented: “We have also seen an increase in COVID-19 related costs, whether that be direct costs such as cleaning and general operating costs. But there has also been increased costs due to channel switching and impacts on the supply chain in relation to freight, storage and handling.”

However, it chose not to quantify this statement, so investors may need to wait until its half year results in February to see where its operating margins stand.

In line with the outlook given with its full year results in August, Baby Bunting expects to open 4 to 6 new stores in FY 2021. Though, no full year earnings guidance has been provided due to the uncertain operating environment.

More reading

• Fund managers have been buying Kogan (ASX:KGN) and this ASX share
• All-time high! Here’s why the Baby Bunting (ASX:BBN) share price is soaring today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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The Zip Co Ltd (ASX: Z1P) share price came crashing down as fast as it went up. In a matter of just 15 trading sessions it climbed from $6.70 to $10.50 and back to $6.70 again. With the PayPal fears behind us, could the Zip share price be ready to have a crack at $10 again? 

Paypal fears forgotten 

The reason for the initial broad BNPL sell off was due to PayPal launching a very similar product. This product will allow customers to pay for a purchase in four instalments over a six-week period, without being charged interest. The key advantage for PayPal is its existing network of more than 26 million merchants and 324 million users. The company has the capability to quickly and easily introduce its product offering to a much bigger audience at a potentially cheaper fee to merchants. Its impact on Zip is yet to be known, but nonetheless a potential risk for Zip’s growth in the US. The PayPal fears combined with a broader sell off of tech shares saw the Zip share price sink almost 50% from recent peak to trough. 

Is the Zip share price a buy? 

The market is expected to continue in a volatile fashion leading into the US election and COVID-19 related fears. I believe investors could take advantage of the potential volatility to come as an opportunity to buy Zip shares at a cheaper price. 

Notwithstanding the risks to the broader market, the Zip share price does appear to have found a bottom and starting to grind higher. I believe further catalysts and news will be needed for the Zip share price to have another crack at the $10 mark. So what could investors look forward to? 

Firstly, the federal budget will be announced today with anticipated immense spending across all sectors of the economy to boost activity and underpin employment. The government hopes that bringing forward income tax cuts will lead to additional spending to kickstart the economy. This is likely to be good news for retail-related sectors including Zip. 

Additional business updates particularly regarding its Quadpay performance will be key in reaffirming investors that PayPal is not a significant threat. Zip had previously updated the market on 24 August of Quadpay’s record performance and growth. This update highlighted record monthly translation volume in excess of US$70 million in July, representing a 30% increase on the June quarter average and a 600% increase year on year. It added an additional 133,000 customers in July and surpassed the 2 million customer milestone in August. It does appear that the momentum is building the Quadpay. 

Foolish Takeaway

A positive US market update and continued international expansion will be key for the Zip share price to have a crack at its recent record all-time high. I would prefer to be buying at a cheaper price for better risk/reward, and the current market volatility could offer that window of opportunity for those that believe in the Zip growth story. 

More reading

• Why this ASX tech share could be better than BNPL stocks 
• Afterpay vs Zip, which is the better investment?
• These were the best performing shares on the ASX 200 last week
• The Zip (ASX:Z1P) share price crashed 33% lower in September
• These were the worst performing ASX 200 shares in September

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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The A2 Milk Company Ltd (ASX: A2M) share price has slumped more than 15% since the release of its FY21 outlook and more than 25% since highs back in July. Is the recent share price slump an opportunity to buy the market darling for cheap, or should more caution be exercised? 

FY21 outlook 

The updated FY21 outlook unravelled a number of factors slowing the growth of the infant formula giant. The company first noted the flow-on effect of pantry destocking continuing into FY21 following a strong sales uplift in 3Q20. Furthermore, reduced tourism, international students and lockdown measures will result in lower than anticipated sales to retail daigous in Australia. The stage 4 lockdown in Victoria will also serve as an additional disruption to corporate daigous and resellers. A2 anticipates that the disruption in daigou channels will continue for the remainder of the first half of FY21. Daigou channels represent a significant proportion of infant formula sales in Australia & New Zealand and it expects ANZ revenue to be materially below plan for the first half. 

Despite such challenges, the business continues to see strong underlying consumer demand in China. It believes the daigou challenge is largely a logistical issue which should be temporary, assuming the stabilisation of COVID-19 related issues. The other areas of business including liquid milk in Australia and the USA, and local China business continues to perform well. 

All things considered, the company forecasts FY21 revenue to be in the range of $1.80 billion to $1.90 billion. This would represent a year on year increase of between 4-9%. 

Is it worth buying the A2 Milk share price dip? 

The company is expecting a flat 1H21 with growth picking up in the second half. On a more positive note, it highlighted that the sale of infant formula through the daigou channel is only one component of its multi-channel and multi-product sales strategy into China. It believes that its mother and baby stores (MBS) and new baby cross-border eCommerce (CBEC) sales will represent an increasing proportion of infant nutrition over time. This diversification will reduce the dependency on the daigou channel.

With that said, the reopening of borders and recovery in consumer spending is still an unknown variable given the fluctuations in COVID-19 cases and lockdown measures. Furthermore, it is difficult to tell whether Chinese tourists and students will visit or return to Australia.  

From a valuation perspective, A2 Milk sits at a reasonable price-to-earnings (P/E) ratio of 28. However, should business conditions continue to swing against the company, its share price could be in for another discount. 

Foolish Takeaway

A2 Milk has been a longstanding market darling of the ASX. Its share price ticked green today after 5 consecutive days of harsh selling. The $14 mark could be an indicative bottom. While I would be cautious with trying to catch the bottom, I am also optimistic about how the A2 Milk share price will deliver in 2H21 and beyond. 

More reading

• Here are the 10 most shorted ASX shares
• Top brokers name 3 ASX shares to sell next week
• These were the worst performing shares on the ASX 200 last week
• These ASX growth shares could be strong buys in October
• The a2 Milk (ASX:A2M) share price crashed 17.5% lower in September

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. 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 new to investing, it can be hard to know when it’s the right time to buy ASX shares.

2020 has been a crazy year with the coronavirus pandemic, March bear market and oil price war combining to make for a volatile share market.

The S&P/ASX 200 Index (ASX: XJO) has fallen 11.2% lower this year to 5,941.60 points. That might be enough to keep some beginners from buying into the market with fears of further declines.

Here are a few reasons why I think right now is a great time to buy more ASX shares.

Not all ASX shares are falling lower

For all of the struggling parts of the economy, some sectors are doing very well. Technology, gold and online retail shares are all booming right now due to various factors.

That means that you can still be tactical about how and where you invest in ASX shares. For instance, the Afterpay Ltd (ASX: APT) share price has rocketed 159.6% higher in 2020 thanks to booming sales and successful international expansion.

Of course, you still want diversification in your portfolio. The key is to be able to ’tilt’ your portfolio in various directions depending on what you think will outperform in the medium-term.

Keep a long-term mindset

I think it pays to have a strategic asset allocation in mind for the long-term with the flexibility to change your investments in the short-term.

It’s easy when you’re starting out to focus on the daily fluctuations. I used to do exactly the same – watch the market each day to see how much my investments had changed.

This isn’t a great habit for most investors. I find that it just made me stress about the losses without adding anything of any benefit.

It’s best to keep in mind why you are investing in ASX shares for the first place. Over a 10+ year timeframe, the movements today or tomorrow shouldn’t worry you.

Foolish takeaway

The best time to start investing in ASX shares was March, the second best time is today. It’s easy to get spooked by online commentators and ‘experts’ who are predicting a doomsday scenario.

However, I think it’s best to trust my own investment strategy and investing for my retirement in the decades ahead.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Afterpay vs Zip, which is the better investment?
• Altium (ASX:ALU) updates market on restructure
• The latest ASX small cap buy ideas from leading brokers
• ASX 200 jumps 2.6%, big 4 banks surge

Motley Fool contributor Ken Hall 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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I’ve got some ideas for where I’d invest $10,000 into ASX dividend shares.

Having cash in the bank just doesn’t earn the same amount of interest as it used to. That’s because Australia’s official interest rate is now just 0.25%. I think the answer is to put some money into the share market into businesses that generate profit and pay dividends. 

Here are some of the best ASX dividend shares that I’d be willing to invest in right now:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) – $3,500

I think that Soul Patts is the best ASX dividend share that Aussies can buy. It has been listed since 1903 and it has paid a dividend every year since then, including through the world wars.

The investment house owns a variety of different listed and unlisted businesses. It has shares in things like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV) and Palla Pharma Ltd (ASX: PAL). It also has unlisted investments like resources, swimming schools, property and financial services.

Soul Patts has grown its dividend every year for the past two decades. It’s quite reassuring knowing your investment is likely to increase the dividend this year.

At the current Soul Patts share price it offers a grossed-up dividend yield of 3.5%.

Rural Funds Group (ASX: RFF) – $2,500

Rural Funds has been one of the most consistent ASX dividend shares over the past five years. Management aim to grow the distribution by 4% every year, and it has achieved that. It’s a solid growth rate when it’s compounded year after year.

The farmland real estate investment trust (REIT) owns various farm types including almonds, cattle, macadamias, vineyards and cropping (sugar and cotton) which are leased to high-quality tenants.

Rural Funds manages to grow its distribution consistently because rental indexation is built into the contracts. Some contracts see the rental income grow by a fixed 2.5% per annum. Other contracts have rental growth linked to CPI inflation. It has long rental contracts, so its distribution growth is almost locked in. It also benefits from investing in productivity improvements at its farms.

At the current Rural Funds share price it has a FY21 distribution yield of 5%. That’s a solid yield for an ASX dividend share.

WAM Microcap Limited (ASX: WMI) – $1,500

I think that WAM Microcap is one of the best listed investment companies (LICs) on the ASX. The purpose of a LIC is to invest in other shares on behalf of shareholders.

WAM Microcap looks to invest in businesses with market capitalisations under $300 million at the time of acquisition.

It has done extremely well since the bottom of the COVID-19 crash. Since 23 March 2020 the WAM Microcap share price has grown 92%.

The ASX dividend share is steadily growing its dividend and it has also paid a special dividend in each of the last three financial years. That’s a great income record.

The LIC’s investment team are very effective at finding those opportunities. Returns won’t also be good as the last six months, but I think it can produce total shareholder returns that beat the market over the long-term.

At the current WAM Microcap share price it offers an ordinary grossed-up dividend yield of 5.25%.

Future Generation Investment Company Ltd (ASX: FGX) – $2,500

Future Generation is another LIC, but it’s quite different.

It invests in the funds of fund managers who work for free so that Future Generation can donate 1% of its assets each year to youth charities.

All of those funds offer a lot of diversification. Future Generation’s portfolio has outperformed the ASX since inception yet it’s trading at a 9% discount to the net tangible assets (NTA) at the end of August 2020.

Future Generation is steadily growing its dividend and it currently has a grossed-up dividend yield of 6.5%.

More reading

• Where I’d invest my first $500 into ASX shares
• 3 alternative ASX shares to buy for defensive income
• 3 ASX shares I’d buy if the share market crashes again
• Forget the tech boom, these ASX shares are primed for the recovery trade
• 2 ASX shares to buy for rock solid retirement income

Tristan Harrison owns shares of FUTURE GEN FPO, RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. 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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On Monday the S&P/ASX 200 Index (ASX: XJO) was in sensational form and surged materially higher. The benchmark index jumped 2.6% to 5,941.6 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to rise again.

The Australian share market looks set to continue its positive run on Tuesday. According to the latest SPI futures, the ASX 200 is expected to rise 29 points or 0.5% at the open. This follows a strong start to the week on Wall Street, which saw the Dow Jones rise 1.7%, the S&P 500 climb 1.8%, and the Nasdaq storm 2.25% higher. News that President Trump is being discharged from hospital helped drive markets higher.

Reserve Bank meeting.

This afternoon the Reserve Bank will hold its October meeting and make a decision on the cash rate. According to the latest cash rate futures, the market is currently pricing in a 67% probability of a rate cut at the meeting. A number of economists are tipping the Reserve Bank to make a partial cut from 0.25% down to 0.1%.

Oil prices rebound strongly.

Energy shares such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could be on the rise today after oil prices rebounded strongly. According to Bloomberg, the WTI crude oil price is up 6.2% to US$39.37 a barrel and the Brent crude oil price is up 5.6% to US$41.48 a barrel. Stimulus hopes helped drive oil prices higher.

Gold price rises.

The shares of Newcrest Mining Limited (ASX: NCM) and St Barbara Ltd (ASX: SBM) will be on watch today after the gold price pushed higher. According to CNBC, the spot gold price has climbed 0.55% to US$1,918.20 an ounce. This was driven by a combination of COVID-19 stimulus hopes and a weakening U.S. dollar.

Federal Budget.

Tonight Josh Frydenberg will be handing down the Federal Budget. The government will be making this a budget focused on creating jobs and driving Australia out of its recession. One major policy will be the bringing forward of personal tax cuts from 2022 and backdated to July. Investors may want to keep an eye out for further policy announcements that may be drip fed to the media during the day. 

More reading

• Altium (ASX:ALU) updates market on restructure
• The latest ASX small cap buy ideas from leading brokers
• ASX 200 jumps 2.6%, big 4 banks surge
• Top broker tipping turnaround in ASX big bank profit margins
• Ignore the noise and focus on these ASX shares instead

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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Later today the Reserve Bank of Australia will meet to discuss the cash rate.

While a full rate cut to zero seems unlikely, a number of economists believe a partial cut down to 0.1% from 0.25% could happen.

This would be great news for borrowers, but certainly not for savers and income investors who will have to contend with even lower interest rates.

Luckily for the latter group, the Australian share market is home to a large number of dividend shares that can help you beat these low rates.

Two that I would buy are listed below:

Dicker Data Ltd (ASX: DDR)

The first ASX dividend share I would buy is Dicker Data. It is a wholesale distributor of computer hardware and software. Due to an increasing number of vendor relationships and robust demand for information technology products, Dicker Data has been growing its earnings and dividends at a strong rate over the last five years. This has continued even during the pandemic thanks to the work from home initiative and the shift to the cloud. Based on the current Dicker Data share price, I estimate that it offers a fully franked forward 4.55% dividend yield.

Telstra Corporation Ltd (ASX: TLS)

I think this telco giant would be a great option for income investors due to its improving outlook. This is due to its T22 strategy, 5G internet, and the easing of the NBN headwind. Combined, I believe a return to earnings and dividend growth could be on the cards in the coming years. In the meantime, I believe its 16 cents per share dividend is sustainable if it shifts its dividend policy to be based on free cash flow. Based on the latest Telstra share price, investors would receive a very generous fully franked 5.65% dividend yield if it does sustain its current payout in FY 2021.

More reading

• How to generate a passive income of $50,000 with ASX shares
• Beat the RBA rate cuts with these ASX dividend shares
• Meet the ASX 200 stock with a dividend yield that’ll hit ~14% in FY22
• The Telstra (ASX:TLS) share price is at a new 52-week low
• 2 high yield ASX dividend shares to solve your income needs

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and Telstra Limited. 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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Afterpay vs Zip? From both a consumer and investor standpoint, I see this question come up online time and time again.

Founded in 2017 in Melbourne, Afterpay Ltd (ASX: APT) is arguably the most well-known buy now, pay later (BNPL) brand in Australia. You have to hand it to the team though. They have their marketing stickers in almost every shop window and on every ecommerce website. The Afterpay business model is essentially short-term, interest-free lending. Similar to a lay-by type deal, but the consumer gets the product instantly.

Zip Co Ltd (ASX: Z1P) was founded in 2009 and just like Afterpay, it is well-known in the BNPL sector. It has a slightly different business model to Afterpay, offering not only BNPL services, but also personal finance management/education through its Pocketbook app. Additionally, Zip offers unsecured loans in different capacities.

Operations and locations

Afterpay has a broad reach, operating in Australia, New Zealand, the United States, Canada and the United Kingdom. It operates through a variety of brands such as Afterpay ANZ, Afterpay US, Clearpay and Pay Now. In August 2020, Afterpay signed off on a deal to acquire Spanish fintech company Pagantis, with the goal to expand its BNPL reach throughout Europe.

Zip is also a major international player, operating in Australia, the United Kingdom, the United Stated, New Zealand and South Africa. The company has multiple brands, including ZIP AU, Zip Global and Spotcap. It offers users digital wallets called either Zip Pay or Zip Money. They are essentially just for different sized purchases.

Afterpay has much more of the European market (after the recent acquisition) and also Canada. Zip has South Africa. In the question of Afterpay vs Zip, aside from those locations, they share a lot of geography.

Financial reports 

Afterpay’s FY20 results really showed it to be a market leader in the BNPL sector. 

• Almost 10 million active users
• 55,000+ partners/merchants
• Revenue of $519.2 million, up 97%
• Earnings before interest, taxes, depreciation and amortisation (EBITDA) of $44.4 million, up 73%

Zip Co’s FY20 results were also very strong, but clearly show it to be a much smaller player.

• More than 2 million active users
• Almost 25,000 partners/merchants
• Revenue of $161 million, up 91%
• EBITDA of $3.5 million

Afterpay vs Zip? Afterpay is clearly the bigger player here.

Share price performance

Year to date, Afterpay shares are up around 170%, with the price rising from $29.15 to around $79.52.

Since its initial public offering (IPO), Afterpay shares are up a staggering 2,887%!

Zip shares have risen 91% in 2020, with prices moving from $3.53 to $6.76.

IPO-wise, Zip has been listed for a lot longer than Afterpay. The Zip share price has risen 2,599% approximately.

Looking at the performance, Afterpay shares have offered investors higher returns in 2020 and also since inception. 

Afterpay vs Zip key takeaways

Afterpay is a bigger player with more market share, a European and Canadian audience and higher returns for investors. For consumers however, Zip offers more options and this could be a key difference over time. Zip also has no scheduled repayments (you determine them within the account), so this can be a competitive advantage over Afterpay.

Even though Afterpay seems to be a clear winner for investors, it still has a lot of competition in general. Also, in the BNPL sector, companies are something only 1 good partnership away from securing huge amounts of market share. As BNPL is such a hot sector this year, it could be worth considering hedging bets and securing shares in both.

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glennleese 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 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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