The Zip share price has crashed to a record low as investors worry about the company’s future. The stock is trading at just $0.53, which is about 96% below its all-time high of $14.58. The company’s market cap has dropped to just A$367 million or $257 million.
Fall from grace
Zip Co Ltd is a leading company that provides Buy Now Pay Later (BNPL) services. The firm has the second-biggest market share after AfterPay. This is an industry that is growing rapidly around the world. For example, a recent report showed that the industry will have a compounded annual growth rate (CAGR) of 72%.
While the industry is gaining more mainstream, the reality is that the BNPL companies are struggling. For example, the Affirm stock price has crashed by over 70% from its highest point in 2021. It is now valued at just $6.70 billion, which is lower than its all-time high of over $20 billion.
Similarly, Klarna, a leading European BNPL company, has seen its private valuation crash from more than $40 billion to less than $7 billion. PayPal, which has BNPL operations has also seen its stock plummet.
Most importantly, Jack Dorsey’s Square has now been criticized for having one of the worst merger and acquisitions ever. The company paid $29 billion for AfterPay. Today, the combined company is valued at just $39 billion.
Why Zip stock has crashed
There are several reasons why the Zip share price has crashed in the past few months. First, with interest rates surging, investors are dumping high-growth and unprofitable companies. In Australia, the Reserve Bank of Australia (RBA) has hiked rates by 125 basis points. The Fed has hiked by 150 basis points.
Second, there are worries about the slowdown in spending as consumer inflation surges. In its most recent RBA decision, the bank warned that inflation will surge to over 7% in the next few months. The same trend is going on in other countries like New Zealand and the United States.
Third, the Zip share price has crashed because of the rising competition in key markets like Australia and US. In Australia, it is battling companies like AfterPay that have significantly bigger balance sheets and popularity. Similarly, it is fighting with companies like Apple, PayPal, and Affirm.
Fourth, investors believe that Zip will have more cash outflow as it expands to the US. It has already spent millions acquiring Sezzle, an American company. Now, it will need to spend much more in boosting its market share in the country.
As such, analysts believe that the company could need fresh funding as it expands in the US, Canada, Mexico, and other European countries. This will not be easy since Zip has a mountain-load of debt. It has over $2 billion of debt against equity of less than $400 million.
Historically, companies that expand too fast tend to make mistakes along the way. Indeed, Zip is said to considering exiting its UK market
Zip share price forecast
The daily chart shows that the Zip stock price has been in a strong bearish trend in the past few months. The stock has shed over 97% of its value and is now trading close to zero. As a result, the stock has moved below all moving averages. Oscillators have also continued falling.
Therefore, while it is possible that the stock will recover, I believe that the stock still has more downside to go as investors worry about existential risks. As such, investors should avoid catch a falling knife and wait for a concrete turnaround strategy.