(Bloomberg) -- Australia’s Zip Co. has become the best performing digital payments stock in the world over the past year as traders wager on a boost for its US business from interest-rate cuts and a focus on curbing costs.
Sydney-based Zip’s shares have jumped 937% during the period, the most in the 41-member Solactive Digital Payments Index, according to data compiled by Bloomberg. The company provides point-of-sale credit and digital payment services in the US, New Zealand and Australia.
Buy-now-pay-later stocks like Zip were pandemic-era darlings but took a hit as central banks later tightened policy to fight inflation. Sentiment is turning around again now that countries including the US have pivoted to cutting rates.
Cynthia Scott, Zip’s chief executive officer, said in an earnings call last month that the company is seeing “continued strong momentum in the US” and described lower borrowing costs as a “definite tailwind.”
The firm “will keep spending on marketing” to tap a $128 billion opportunity in the US and compete with Block Inc.’s Afterpay, Affirm Holdings Inc. and Klarna Bank AB, Bloomberg Intelligence Senior Industry Analyst Matt Ingram wrote in a note.
Reduced headcount and the shuttering of operations in Canada, the UK, Singapore and Mexico are among developments that have helped to contain costs, according to Bloomberg Intelligence. At the same time, elevated interest rates in Australia may be biting and could hurt 2025 profit, BI said.
Options Bets
Options traders have increased bullish bets on the stock, data compiled by Bloomberg show. Call volume surged to a more than one-year high on Sept. 23 as blocks of October contracts with strikes of A$3.20 ($2.20) and A$3.10 changed hands — the shares haven’t traded above A$3 since February 2022.
Zip rose 4.9% to A$2.80 on Thursday. The average 12-month analyst price target is A$2.32, implying a drop of 17%. The shares remain far below their 2021 record intraday high above A$14.
One of the key risks in the US is whether emerging signs of labor market weakness herald an economic slowdown, or even a recession. US consumer confidence unexpectedly fell in September by the most in three years.
But Jun Bei Liu, a hedge fund manager at Tribeca Investment Partners, said buy-now-pay-later remains fairly new in parts of the US, which thus presents “significant opportunities for growth.” Her fund has a long position in Zip stock.
--With assistance from Cecile Vannucci.
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