The Zip Co Ltd (ASX: Z1P) share price continued its theme of underperformance on Monday, falling another 5% to a 7-month low of $5.17. As the Zip share price begins to approach pre-QuadPay acquisition levels, could it be a buy?
Macquarie cautious on Zip share price
Macquarie Group Ltd (ASX: MQG) cautiously raised its Zip share price target from $4.95 to $5.05 while retaining an underperform rating last Friday. The broker sees the recent capital raising as a small positive but notes building risks.
Zip capital raising to fuel growth
Zip successfully completed a $120 million capital raising last Thursday to fuel its growth in existing countries, explore new markets and further product expansion.
The issue price for the placement shares was $5.34, representing a 4.1% discount to its last traded price pre-capital raising on 16 December. The placement represents approximately 4.3% of its total issued capital before the placement.
Zip capital raising updates
US growth is accelerating
Zip's capital raising presentation highlights that 58% of the raise, or $85 million, will be used to continue the company's growth trajectory in the United States. The US represents an addressable retail market of $5 trillion and a significant opportunity to capture market share.
Zip's growth so far has been strong. November 2020 US transactions, under the brand QuadPay, grew 205% to $264.2 million compared to November 2019, while global transactions increased by more than 100% to $577.1 million. These figures come as no surprise given a recent Afterpay Ltd (ASX: APT) update highlighted a 186% increase in its US sales to $1.0 billion for the month of November, compared to the prior corresponding period, while global sales rose 112% to hit $2.1 billion.
New markets division to capitalise on global opportunity
Zip recently set up a 'new markets' division. According to the company, the division leverages deep expertise and executes across product, engineering, regulatory and growth functions to tailor its entry to local requirements and consumers.
This division has hit the ground running with investments in two high-performing, culturally aligned existing players to quickly gain access and acquire customers.
These include Spotii, a buy now, pay later (BNPL) player headquartered in the United Arab Emirates focused on the Gulf Cooperation Council (GCC) region. Zip believes that, together, the two companies will provide a wealth of new opportunities for GCC merchants, drive new customer acquisition, accelerate revenue growth and expand the local BNPL market.
Zip has also entered into a non-binding agreement with Twisto, a payments platform operational in Czechia and Poland. Its position in the European Union may also open the ability to license across the rest of Europe.
Bring further scale to Zip business
Arguably, Zip's operation in the small business space could be seen as a unique differentiator against other BNPL players. The company has established enterprise partnerships with big names such as eBay Inc and Facebook Inc, to help small businesses access Zip's buy now pay later digital wallet to help run their business and pay for everyday expenses interest free.
At the time of writing, the Zip share price is trading nearly 2% lower at $5.07.
Editor's note: an earlier version of this article incorrectly stated Zip Co's November total transaction volume as $264.2 million. The correct transaction volume figure for November 2020 is $577.1 million. The comparisons being made between Zip Co's and Afterpay's global and US-based transactions for November 2020 have been clarified.
