The Zip Co Ltd (ASX: ZIP) share price is having a stellar start to the week.
At the time of writing, the buy now pay later (BNPL) provider's shares are up 18% to 80.5 cents.
Though, as you can see below, the Zip share price remains down 75% over the last 12 months.
Image source: Getty Images
Why is the Zip share price racing higher?
Today's gain appears to have been driven by the release of a trading update from BNPL rival and former merger target Sezzle Inc (ASX: SZL).
That update revealed that during December, Sezzle delivered its second consecutive month of profitability. And while its profit was certainly on the modest side, it is a big step in the right direction for an industry known to burn through cash and raise capital.
This appears to have sparked hopes that Zip's profitability targets are not as farfetched as many feared.
Sezzle update
For the month of December, Sezzle reported a 15.7% year-over-year and a 1.7% month-on-month increase in revenue to US$19.9 million.
This helped take the company's net income for the fourth quarter to US$500,000, which compares very favourably to a net loss of US$25.9 million in the same period a year earlier. What a difference 12 months makes!
Sezzle's CEO, Charlie Youakim, appears to believe this could mean the end of capital raisings for the company. Particularly given its cash balance of US$69.7 million. He said:
In 2022, we set out on a mission to become profitable by year end… We are excited, as we have shown investors that we are clearly on the path to profitability with a well-capitalised balance sheet that does not require additional capital.
All in all, this could be interpreted as a positive read through for other BNPL providers, which explains why the Zip share price has responded so positively today.
