The Zip Co Ltd (ASX: ZIP) share price has jumped 7.3% to $3.02 today, likely due to some positive news out of the United States. One expert is particularly excited by what this means for the buy now, pay later (BNPL) business.
Zip has two main markets – the US and Australia/New Zealand. While Zip may have built its business and reputation in Australia, the company's biggest growth avenue is the US, which has well over ten times the population of Australia.
Positive developments in the US could be good news for the company in the foreseeable future.
Let's look at what happened across the Pacific.
According to reporting by The Australian, Citi share analyst Siraj Ahmed has placed a positive catalyst watch on the BNPL provider because of an earnings update by Sezzle, a rival in the US that used to be listed on the ASX.
Sezzle reportedly increased its revenue guidance to more than 55% year-over-year growth due to "exceptional holiday demand."
Another positive, according to the Citi analyst, was that Sezzle reported that credit losses were in line with expectations. This was consistent with Zip's feedback from management to Citi in December.
The recent US Federal Reserve interest rate cuts in the US last year have boosted consumers, but Zip's quarterly performance may also benefit from a weaker Australian dollar compared to the US dollar, according to CIti. Zip reports in Australian dollars, so a weaker Australian dollar increases the value of US dollar-denominated sales for shareholders.
Citi's Ahmed suggested there was a positive chance that the market could increase expectations of how much cash operating profit (EBTDA) the business could generate in FY25, compared to the current forecast of $153 million. Citi thinks the cash EBTDA could be $158 million, assuming an exchange rate of AU$1 to US 66 cents.
Can Zip shares keep rising? A price target is where a broker thinks the share price will be in 12 months from the time of the investment call.
Citi currently has a price target of $3.15 on the buy now, pay later business. That implies a possible rise of approximately 5% from today's level.
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