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Date : 04/08/2022

Will “Operation Blue Sky” help Zip Co Ltd (ASX: ZIP) shares Rebound and Survive?

Zip Co Ltd (ASX: ZIP) has become one of the biggest BNPL or buy now, pay later companies in Australia. But if we look at the 2022 data, ZIP shares have lost more than 80%, which is extreme devaluation. Statistics say that when the BNPL sector witnessed incredible growth in the previous year, the market cap of ZIP was higher than some of the best blue chip stocks listed on ASX like JB Hi-Fi and AGL, etc.

But since the beginning of 2022, ZIP shares have lost significant value due to the downfall in the BNPL sector. It has been a roller coaster ride for the company as ZIP shares have seen incredible growth in the share price and have gained more than 150% in the past month.

ZIP: Quarterly Update was Remarkable

Since Zip has announced its quarterly updates, its shares are skyrocketing. The result has been in favour of investors, but the company still has a long way to go to reach its last all-time high. ZIP is currently trading at $1.22 and has gained 154% in the past month. The market cap of the company is approximately 835.66 Million AUD.

asx zip

  1. The group’s quarterly revenue was $160.1m (up 27% YoY).
  2. ZIP’s transaction volume for the quarter totalled $2.2b (up 20% YoY).
  3. The transaction numbers for the quarter were 19.4m (up 37% YoY).
  4. Its customer numbers increased to 12.0m (up 64% YoY).
  5. Their merchants on the platform increased to 90.7k (up 77% YoY).
  6. Zip signed key enterprise merchants Qantas (in AU) and Bed Bath & Beyond (in the US). Best Buy went online in AU during the quarter, and eBay will soon go live in the upcoming months in AU.
  7. Zip has $278.6m in cash and liquid assets as of 30 June, which should be enough to reach cash EBITDA profitability.
  8. Earlier this month, Zip announced that in light of current macroeconomic and market conditions, Zip and Sezzle had mutually agreed to terminate the proposed acquisition of Sezzle by Zip.

ZIP: What is Operation Blue Sky?

It is a term coined by Zip for its upcoming cost reduction plan. This strategic plan’s essential priority is to cut the costs and make the company economically feasible to cover its expenses so that they don’t need any types of funds in the future.

The company intends to lower the costs by removing $30 million in employee costs, rein in plans for global expansion, stop new lending, and for the time being, put a stop to new product launches.

In light of the current economic situation, ZIP has to cancel the long-anticipated merger with Sezzle. This was a glimpse of Operation Blue Sky.

Why does ZIP need to Stop Expanding?

Due to the rise in the bad debts of BNPL companies and increased competition, the company had to stop its ambitious behaviour from expanding into different markets for a while. Its co-founder Peter Grey confessed that the market sentiment and scenario surprised them. But postponing the expansion goal and cutting costs would help them not only to sustain and increase its profitability to brighter its chances of survival.

ZIP: What Next?

ZIP shares were hit by a severe blow due to the downward trend in the BNPL sector and sunk 80% last year. This was a major sell-off, especially compared to its main rival, Block Inc. (ASX: SQ2). SQ2 shares lost only 53% in comparison.

The price-to-book (P/B) ratio for Zip is now at 0.5. Compared to Block’s, it’s 2.6 times; this implies a substantially higher discount. ZIP’s most essential test will be if it can meet its goal of achieving a positive EBITDA by 2024 in a more restrained consumer spending environment.

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