The Zip Co Ltd (ASX: Z1P) share price has risen by around 23% in the month of June 2021 to date. But could it be a buy after this strong rise?
The buy now, pay later (BNPL) business has been seeing continuing growth of its key metrics in the second half of FY21.
In the third quarter of FY21, Zip saw record group quarterly revenue of $114.4 million, which was an increase of 80% year on year. Quarterly transaction volume of $1.6 billion was up 114%.
There was record transaction numbers for the quarter of 12.4 million, up 195% year on year.
Medium-term revenue growth may be supported further by rising customer numbers and merchants on the platform. At 31 March 2021, customer numbers had grown 88% to 6.4 million and merchants rose 81% to 45,300.
The company pointed to its US division as a standout performer. US transaction volume grew 234% to $762 million, revenue rose 188% to $54.4 million and customers rose 153% year on year to 3.8 million.
But it's not just the top line that is improving. Net bad debts reduced to 1.78% (down from 1.93%) for the Australian receivables. Management said this was a very strong result, further validating the strength of its proprietary credit decision technology and ability to manage risk.
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Focus on international growth
Not only is Zip trying to trying to grow Zip US (Quadpay), but it has also recently made some acquisitions for other acquisitions.
Zip is now looking to expand its BNPL operations to Europe and the Middle East with some acquisitions.
It's buying the rest of European-focused Twisto Payments as well as Middle East business Spotii.
Zip says that Europe is a $1.1 trillion annual e-commerce market and Twisto's license can be passported to all 27 members of the EU. The Middle East is described as one of the world's fastest-growing global e-commerce regions.
Management explained that these strategic transactions will enable Zip to respond to the increased demand from merchants for a single global BNPL solution across multiple markets with a consistent global service quality.
Zip also said that it's building a playbook of successfully identifying, completing and integrating strategic acquisitions.
The BNPL company believes Twisto and Spotii are now well positioned to leverage the benefits of this competency and the synergies of a global payments business.
Zip's CEO also said that there is a large untapped opportunity to bring BNPL to emerging markets where cash on delivery remains a significant merchant challenge, and where the digitalisation of retail accelerates.
Is the Zip share price a buy?
There are polar opposites for the ratings on Zip. UBS and Macquarie Group Ltd (ASX: MQG) rate the Zip share price as a sell, with a price target of $5.60 and $5.70 respectively. That's more than 30% lower than where it is today. Those two brokers highlight rising competition and an increase in growth expenses.
However, there's also a view like Citi's with a price target of $10.90. Whilst there is slowing growth, Quadpay continues to be a highlight. However, it recently reduced that price target down from $11.30 because of the slowing growth prospects.
