ZIP has made headlines over the past week, plunging around 50% on Friday before rebounding more than 60% by Monday’s close. After such a dramatic reversal, the obvious question is whether the stock still offers value at current levels if we look through the short-term news.
- Zip’s 1Q27 result last week was weaker than expected, with higher net bad debts and an external fraud incident weighing on performance and sentiment toward the stock.
However, we see room for improvement in 2Q27. US Total Transaction Value (TTV) growth accelerated to 41% (constant currency) in September, from 34% in the 1Q; management expects net bad debts to decline quarter-on-quarter, and the company has maintained its FY27 earnings guidance despite the fraud impact. Even if we tweak down our FY27–29 forecasts, the stock looks cheap trading ~11x Est. FY27 earnings, with those earnings expected to be up ~27% YoY.
The key risks for ZIP are whether the fraud incident has been fully contained and whether credit losses continue to rise in a softer economic environment:
- The external first-party fraud incident reduced 1Q cash EBTDA by around $10m, equivalent to approximately 30 basis points of US TTV. However, ZIP has since strengthened risk controls, including temporarily blocking Pay-in-4 transactions, and management believes the incident has been fixed.
- Group net bad debts rose more than expected, although we would expect an improvement in 2Q as the 1Q has some negative seasonality in it, plus the revised medium-term assumption remains within its 1.5–2.0% target range. On the growth side, September’s acceleration in US TTV was encouraging, with the Black Friday, Cyber Monday and Christmas trading period providing a near-term test of momentum.
Below $2, trading on 11x and growing at ~30%, there’s still plenty of “bad news” built into the share price.
- As the dust settles, we believe the share price fall was a chronic overreaction, and Zip looks primed for a full recovery of Fridays hit.
MM is long and bullish towards ZIP around $1.60
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