Do Affirm's warnings raise red flags for the Zip (ASX:Z1P) share price?

What's up with Zip shares today?

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Key points
  • The ASX 200 is having a disappointing day today
  • But Zip shares are faring far worse than the overall market
  • Let's take a look at what might be spooking investors today...

The S&P/ASX 200 Index (ASX: XJO) is, unfortunately, having a pretty depressing end to the week so far this Friday. At the time of writing, the ASX 200 is down by 0.71% after falling a little further earlier in the trading day. But the Zip Co Ltd (ASX: Z1P) share price is putting that move to shame.

Zip shares are currently down a nasty 6.2% at just $2.88 each That's a lot closer to the company's 52-week low of $2.78 than its 52-week high of $14.53 a share. Today's move puts this buy now, pay later (BNPL) company's 2022 performance at a sobering -33.5%.

So what might be behind Zip's share price malaise this Friday?

Well, it's possible Zip shares have just been caught up in the selloff that has gripped the ASX tech shares sector. We've already covered Appen Ltd's (ASX: APX) nasty fall earlier today. So perhaps Zip is just experiencing a similar fate.

But there is some other relevant news out today that might be affecting investor's appetites for Zip shares too.

Last night (our time), the US BNPL company Affirm Holdings Inc (NASDAQ: AFRM) reported its quarterly results for the December quarter. As my Fool colleague Brooke covered this morning, Affirm was forced to release the results early after the company mistakenly gave some of it away on Twitter.

A wide-eyed man peers out from a small gap in his black zipped jumper conveying fear over the weak Zip share price

Image source: Getty Images

Buy now, pay later? Investors are paying now, but not buying Zip shares…

Affirm reported a 77% increase in revenue over the quarter. But it also reported a net loss of US$159.7 million. Investors evidently weren't too impressed. The Affirm share price promptly crashed 21.4% over last night's US trading session.

So obviously some of this sentiment alone might have flown into the zip share price. Block Inc CDI (ASX: SQ2), the new owner of fellow BNPL provider Afterpay, has also lost a good chunk of change today.

But another warning came out of Affirmt that might have spooked investors even further.

According to reporting in the Australian Financial Review (AFR) today, Michael Linford, chief financial officer (CFO) at Affirm, warned investors that rising interest rates pose a massive risk to Affirm's business. He said that a "1 per cent lift in rates 'beyond current expectations' would result in 20 basis point impact to revenue less transaction costs as a percentage of gross merchant value in FY2023".

Investors in both the US and here in Australia are already arguably on edge over inflation and interest rate rises. So that was probably not what investors wanted to hear. Worryingly for Zip, it's possible that the same factors could affect Zip's own business in a similar fashion.

So that might be why ASX investors are punishing Zip shares today so far.

At the current Zip share price, this ASX BNPL share has a market capitalisation of $1.71 billion. 

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Block, Inc. and ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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