Is the Zip (ASX:Z1P) share price a beaten-down buy?

The Zip Co Ltd (ASX:Z1P) share price has fallen heavily a lot over the last couple of weeks. Is it now a beaten-down buy?

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The Zip Co Ltd (ASX: Z1P) share price is being heavily beaten down. Is it now a buy?

At the pre-open price today, Zip shares have fallen around 30% from 13 April 2021. It's actually down just over 50% from 16 February 2021.

After such a big decline – is it now a really good opportunity?

Getting insight into how a business is performing can help investment considerations.

FY21 third quarter

A month ago we heard how Zip did in the three months to 31 March 2021. It reported that it generated record group quarterly revenue of $114.4 million – up 80% year on year. Zip saw quarterly transaction volume of $1.6 billion, which was up 114%.

The number of transaction numbers for the quarter jumped 195% to 12.4 million compared to the prior corresponding period.

Customer and merchant numbers continued to increase at a strong double digit rate, up 88% and 81% year on year respectively

It was the US division (Quadpay) that drove this large amount of growth despite it normally being a quieter period. Transaction volume grew 234% to $762 million, revenue rose 188% to $54.4 million and its customer numbers increased 153% to 3.8 million.

Zip ANZ growth wasn't as strong, transaction volume grew 61% to $837.3 million and revenue grew 37% to $57.9 million.

The buy now, pay later business said that its net bad debts reduced to 1.78%, down from 1.93%, for Australian receivables. Management said that was a very strong result which further validated the strength of Zip's proprietary credit decision technology and ability to manage risk.

This update then allowed Zip to price $400 million of zero coupon senior unsecured convertible notes due 2028

Is the Zip share price worth pursuing?

Brokers certainly have mixed thoughts on the buy now, pay later company.

You've got a broker like Morgans that thinks Zip shares are a buy, with a price target of around $10.40. It pointed out Zip now has around $0.5 billion of funding (including the notes) to provide the money for growth for the foreseeable future.

Citi is also bullish about the Zip share price, with a target of $11.30. Citi was impressed by the growth demonstrated in the FY21 third quarter – it was better than expected.

However, there's also brokers like UBS that has a price target of $6.75. Remember, that's where the broker thinks the share price will be in 12 months from now. One of the areas of concern is that UBS believes BNPL growth will slow as government support in response to COVID-19 reduces.

Macquarie Group Ltd (ASX: MQG) has an even lower price target of $5.70. The broker pointed out that investors are just looking at the speed of the rise in customers and transactions rather than taking into account Zip's costs of driving its growth numbers higher.

Tristan Harrison 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 and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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