Why the Zip share price is plummeting 15% today

The Zip Co Ltd (ASX: Z1P) share price is plummeting today, down 11%. What's behind the sell-off, and is this dip a good buying opportunity for Zip shares?

| More on:
man bending over to look at red arrow crashing down through the ground

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Zip Co Ltd (ASX: Z1P) share price is plunging today, down 11.64% at the time of writing to $7.06 a share. Z1P shares opened at $7.26 this morning after closing at $8.01 yesterday and were down to $6.57 at one point, highlighting the swift and decisive nature of this move.

Zip shares have had a rollercoaster ride over the past fortnight. Exactly 2 weeks ago, Zip shares were asking $6.24. By 24 August, the Zip share price was up to $7.45 and by 26 August it was $9.65. After printing a new all-time high of $10.64 on Monday (representing a gain of more than 70% in under 14 days), the shares came crashing back to earth and have continued to fall ever since.

Why is the Zip share price crashing 15% today?

The selling of Zip shares has accelerated over yesterday and today – 2 days where the stock has shed more than 20% of its value. The catalyst behind this move is highly likely to be the announcement on Monday night (our time) that the American payments giant PayPal Holdings Inc. (NASDAQ: PYPL) is entering the buy now, pay later (BNPL) space that both Zip and arch-rival Afterpay Ltd (ASX: APT) are currently dominating.

PayPal is a payments company with a market capitalisation of approximately US$245 billion – no small fry. It's known for both its stellar growth in the online payments space over the past decade and for being one of Tesla Inc. (NASDAQ: TSLA)'s CEO Elon Musk's early business ventures.

PayPal released a statement on Monday outlining the launch of 'Pay in 4' to customers in the United States in the fourth quarter of 2020. This new product will allow customers to make a purchase and 'pay in 4' interest-free instalments. It will be embedded into PayPal's existing payments infrastructure, which means merchants won't be charged additional fees for its use.

This product is obviously a direct threat to Zip (and Afterpay) given PayPal's size and scale in the payments market. This partly explains, in my view, why the Zip share price is cratering today.

Froth and volatility

It's also worth noting that there was a lot of froth and volatility in the Zip share price, which is inevitable when you have a 70% move upwards over just 2 weeks. A share price movement like that is extremely vulnerable to a negative piece of news like we've witnessed coming out of PayPal.

With a lot of short-term traders likely sitting on massive profits, there would have undoubtedly been a lot of itchy fingers yesterday morning. This news was evidently more than enough to trigger some profit taking, which looks to be snowballing today.

Is Zip a buy today?

If you're bullish on Zip's long-term future and aren't fazed by PayPal's moves, then perhaps. But I'm certainly staying away from this frothy stock for now. There is clearly a lot of betting and trading going on with the Zip share price this week, and that's something that I want no part of. It might be worth waiting for a real dip on this one, rather than the dramatic steam-letting we are seeing today.

Sebastian Bowen owns shares of Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. 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.

More on Share Market News

two men smiling with a laptop in front of them, symbolising a rising share price.
Broker Notes

These ASX 200 shares could rise 25% to 60%

Analysts think these shares are top buys and could rise materially.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors finished the trading week on a sour note today.

Read more »

Happy teen friends jumping in front of a wall.
Share Gainers

4 ASX 200 stocks smashing the benchmark this week

Investors are sending these four ASX 200 stocks soaring this week. But why?

Read more »

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Broker Notes

Bell Potter says this growing ASX 200 stock can rise over 40%

Big returns could be on the cards for buyers of this stock.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Share Market News

Which delivered superior returns in FY25: CSL, A2 Milk, or Telstra shares?

We review the share price growth and dividend income delivered to investors in FY25.

Read more »

Woman with an amazed expression has her hands and arms out with a laptop in front of her.
Share Gainers

Why IGO, Johns Lyng, Lynas, and Web Travel shares are pushing higher today

These shares are ending the week on a high. But why?

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

Why Imricor, Ora Banda, Ventia, and Vulcan shares are dropping today

These shares are ending the week in the red. But why?

Read more »