Why Zip is still a good buy for your portfolio

Zip Co Limited (ASX:ZIP) is the second-largest buy now, pay later (BNPL) provider in Australia and New Zealand, with 54,000 merchants and 2.2 million users.

The company is also expanding in the US, where it serves 24,000 merchants and 3.8 million users.

Under the new leadership of Cynthia Scott, Zip has made significant strides in profitability over the past year in Australia,  and the US. We believe Scott will drive substantial profit growth, especially in the US market.

Company background

Founded in 2013 by Larry Diamond and Peter Gray, Zip offers convenient payment solutions for shoppers, both online and in-store. It operates in the same space as Afterpay and Klarna.

As a licensed credit provider, Zip helps retailers convert traffic into sales through BNPL and interest-free payment options.

After going public in 2015, Zip quickly expanded and now operates in 14 countries, primarily serving younger customers looking for flexible payment solutions.

Zip ANZ products

Zip offers three products in ANZ:

• Zip Pay: Designed for small purchases up to $1,500. If you pay on time, there are no fees; otherwise, there's a monthly charge of $9.95. Payments can be made weekly, fortnightly, or monthly, with a minimum of $10.
• Zip Money: For larger purchases, this product provides credit limits between $1,000 and $5,000. It includes an interest-free period, with a $9.95 monthly fee (waived if the balance is zero). After the interest-free period, an interest rate of 25.95% applies.
• Zip Plus: Recently launched, this product combines features of Zip Pay and Zip Money, offering limits between $2000 and $4000. A daily interest charge applies for balances over $1500.

Zip Americas

In 2020, Zip entered the US market by acquiring QuadPay, which allows customers to pay for small purchases in four instalments over six weeks.

Zip has around 24,100 merchants and 3.8 million users in the US.

Is Zip a buy, hold or sell?

We believe Zip's strong relationships with high-quality merchants and payment partners creates a significant distribution network.

The company is poised to disrupt the payment market further, showing rapidly growing profitability.

We expect Zip to achieve substantial profit growth in 2025 as it completes its first full year of profit and continues to grow by at least 30% over the next two years.

In a way we are still very early in the growth path of Zip. Buy.

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