As it turns out, not too many ASX shares enjoyed a great month over October. The broad S&P/ASX 200 Index (ASX: XJO) went backwards by around 0.1%, with ASX resources and banking shares dragging on the ASX 200.
One ASX 200 share that was particularly disappointing for investors was the Zip Co Ltd (ASX: Z1P) share price.
Zip shares certainly had a month to forget. This buy now, pay later (BNPL) company started October at a price of $7.06 a share. But it ended up finishing the month at just $6.50 last Friday. That's a slide of 7.93%. Ouch.
So, what went so wrong for Zip over October?
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Zip share price falls despite record quarterly update
Well, the centrepiece of Zip's month was the first quarter update the company posted on 18 October. In this update, Zip told the markets that it managed to bring in a record quarterly revenue of $126.8 million, up 89% year on year. Its quarterly transaction volume also broke records, coming in at $1.9 billion, up 101% year on year.
The company now has a customer base of 8 million, up 82%. While the number of merchants using its platform also continues to skyrocket, hitting 55,200 over the quarter, up 71%.
Despite an initial share price pop of roughly 5% when this update was released, investor sentiment cooled off very quickly in the days that followed. By Wednesday last week, the Zip share price was back below where it was on the day before this quarterly update was released.
Brokers and short sellers send some tough love for BNPL
This may have been spurred by some negative broker coverage of Zip that week. As my Fool colleague James covered last Tuesday, broker UBS evidently wasn't impressed with Zip's update. UBS has retained a 'sell' rating on Zip with a 12-month share price target of $5.40. That implies a potential 12-month downside of close to 15% on today's pricing.
UBS pointed out that the Reserve Bank of Australia (RBA) is planning on removing the 'no surcharge rule' for BNPL products. The broker reckons this is an "incremental negative" for Zip Co.
As we covered last month, the RBA has indeed changed its tune on the no surcharge rule. This prevent retailers from directly passing on the higher transaction costs of BNPL payment methods to consumers.
The RBA now won't stand in the way of merchants wanting to apply a surcharge to BNPL transactions if they so wish. This, the RBA believes, will "promote competition and efficiency in the Australian payments system".
Investors remain sceptical about the Zip share price. As the Fool covered last week, Zip shares remain in the top 10 most shorted ASX shares on the market.
All of these factors may have assisted in making Zip's October one to forget. Investors in this BNPL company will no doubt be hoping for a better November.
At the current Zip share price of $6.29, the company has a market capitalisation of $3.6 billion.
