Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Now that the smoke has cleared from the hype of the BNPL sector. Will ZIP be one of the last companies in this sector. The Australian Govt will be introducing tighter credit checks, which suits ZIP as they already do these checks. The CEO of ZIP has stated that they will be aiming to turn a profit in 2024. Just like a cigarette butt, is there a light left in ZIP ? Has the ZIP share price been oversold?
Hi Linda,
An extremely well timed question with Goldman Sachs tapping the market for a cash injection on Thursday – the word is they are looking for $25mn at 47c having closed on Wednesday at 50.5c, the stock went into a trading halt on Thursday. The company is also looking to restructure its liabilities which will see the convertible note holders taking a significant haircut i.e. a debt of $330mn falling to $137.8mn = ouch!
The answer to your question is not clear at this stage. The reason being is that these BNPL models have not been tested during a recession, and we’re not that sure how they will perform from a bad debt perspective, while on the other side, they need continued funding to grow, which becomes more expensive and harder to get. You’re right in terms of regulation and ZIPs model, they already have credit checks in place which puts them in a decent position. RE profit, they need to produce it in FY24 because the market is not prepared to fund them anymore via equity.
We can see Zip being a bit of a binary bet – it may rally multiples of where it is today if they can walk to tight rope, however for us, we’ve been burnt on Zip in the past and we would want to see tangible evidence that the model can handle more external pressures and remain viable.
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