Here's why UBS tips the Zip share price to halve

The BNPL company reported a jaw dropping $1.1 billion loss from ordinary activities after income in FY22.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • Zip share price sinks to 91 cents 
  • UBS notes “material uncertainty” over the BNPL stock’s outlook 
  • Managing cash burn in the upcoming year will be crucial for the company 

The Zip Co Ltd (ASX: ZIP) share price is in the red.

Again.

Zip shares are down 4.1% in afternoon trade to 91 cents per share.

This follows on a 2.1% loss yesterday, when the buy now, pay later (BNPL) stock released its full-year results for the 12 months ending 30 June (FY22).

And those results were, well, less than stellar.

Despite reporting a record year of revenue of $620 million, up 57% from FY21, the company reported a jaw-dropping $1.1 billion loss from ordinary activities after income. That's 63% more than the sizeable losses it suffered the prior year.

Remarkably, the Zip share price was up for almost all of the day, with gains of 2.3% on the board just 30 minutes before the closing bell.

Then investors appeared to get cold feet. Or perhaps re-examined the number of zeros in the net loss column. Either way, Zip shares lost 4.7% in the final 30 minutes of trade.

a boy with sad eyes pulls the zip over his mouth and nose while doing up a large jacket where the collar stands up at head height.

Image source: Getty Images

Is the company still overvalued?

Which brings us to UBS analyst Tom Beadle.

Beadle believes that even at today's 91 cents, the Zip share price may be double what it should be.

According to Beadle (courtesy of The Australian):

In FY23, managing cash burn and demonstrating a clear path to profitability will be crucial for Zip. Whilst Zip have announced a range of initiatives designed to reduce cash burn, quantifying their precise impact remains difficult; in our view material uncertainty remains.

Indeed, as The Motley Fool reported yesterday, Zip's cost of sales grew by an unenviable 76% in FY22. The company aims to reduce costs in part by ceasing its operations in Singapore and the United Kingdom. Zip also said it will focus on reducing mounting credit losses.

Nonetheless, UBS' Beadle retains a sell rating on the company, with a 45-cent target for the Zip share price.

Zip share price snapshot

It's been a rocky year for shareholders of the BNPL company, with the Zip share price down a painful 79% since the opening bell on 4 January. For some context, the All Ordinaries Index (ASX: XAO) is down 7% year-to-date.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended 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 Scott Phillips.

More on BNPL shares

Little girl looking down trying to zip up her pink windcheater.
BNPL shares

Zip share price dips amid cap raise rumours

The Zip share price closed 4.95% lower during a crummy day for the market.

Read more »

Woman looking at her smartphone and analysing share price.
BNPL shares

This ASX All Ordinaries stock is down 40% in a year, and the chair is buying up big

Over the past three months, he's spent more than half a million dollars of his own money buying more Humm…

Read more »

Three United States flags and a Wall St sign outside the US financial building.
BNPL shares

Guess which ASX All Ords share is planning a Nasdaq listing

Sezzle has its eyes on a US listing to expand its investor base.

Read more »

woman paying using paypal
BNPL shares

Zip share price gains amid global asset sale

Zip has begun the process of selling off assets after announcing it will cease operations in six more international regions.

Read more »

illustration of laptop with down arrow and the word zip representing zip share price going down.
BNPL shares

Why did the Zip share price crash 26% in February?

The Zip share price fell 26% last month, as the ASX BNPL stock faced headwinds from three fronts.

Read more »

woman thing about her payment
BNPL shares

Why is Choice gunning for ASX BNPL companies like Zip?

The Federal Government wants to make a decision on new regulations for BNPL companies by the year's end.

Read more »

unhappy investor considering computer screen
BNPL shares

Are Zip shares finally cheap enough to buy following last week's 12% dive?

Even though Zip shares look cheap, there are a few red flags to consider...

Read more »

a young woman sits with her hands holding up her face as she stares unhappily at a laptop computer screen as if she is disappointed with something she is seeing there.
BNPL shares

Zip share price lower on $243m first-half loss

Zip is still making large losses but is heading in the right direction...

Read more »