Reiterating 10$- Nov 2020

The fundamental scary concerns & responses

PayPal: the only company that can compete & competing with PayPal at the moment in US is quadpay, growing 13% monthly with annual CAGR of 100%. Quadpay will continue to grow in the next two years atleast because zip offers better margin for retailers than PayPal. PayPal is a legit concern for APT & SZL. Goldman got 200 million credit line for quadpay & GS got 250 million block traded in APT with a target price of 93$. This is the worlds best investment bank who knows better than citi or UBS who by the way are also substantial holders in zip.

Banks credit cards: credit cards are going down are drastic pace, over 2 million cards are chopped off by now & ozi addressable market is 16 million. Can’t be taken over in a month or year but eventually will be wiped out. Same pace of reduction in US. The main reasons I don’t see any competition with credit cards is zip loan book funded by banks & wbc is still holding the same shares as it was holding before. When disrupters are funded by disruptees then you don’t really see a competition.

Bad Debts: 97% is the customer retention rate, 2.54% is the bad debt wrt receivable. 23 million written off thus year. By this growth rate 37 million shall be written off next year roughly 3.5% of the receivable book. Arrears declining continuously, not a surprise if market sell off 20% next in September.

Regulation: Zip is way over the line compared to other BNPL companies with respect to credit checking. That’s why it has very less bad debt wrote off compared to others. Cash flow management software keeps the data of every customer which can be presented to any senate inquiry locally or internationally. Regulations will strengthen zip position in the market all over the world.

SP volatility: Worst case, zip can be sold off to 5.5$ & an absolute brutal case it can go back & close the gap at 3.8$ before quadpay acquisition. This can only happen if quadpay comes out with a real poor growth rate on any business update. This is highly unlikely because quadpay has been growing at 13% month on month so far.

Inorganic growth: With two acquisitions quadpay & partpay along with Covid help in last 18 months we have seen real quick growth & the organic growth of the company is being hidden behind somewhere, in the next 12 months Real organic growth of the company will pan out along with challenges of integration & reduction in the job seeker & keeper allowances.

Debt: Net assets of 32 million shows debt is healthy since it in-line with receivables. Zip needs to grow its credit line to grow its loan book & terminally receivables.

Why I am still insisting 10$ SP by November because none of substantial holding changed and with UK launch in the pipe line, buyers will come back strong. We have pull back in the sector but not trend reversal, trend reversal needs double top confirmation which we haven’t seen so far.