Since the start of the year, Zip's share prices have been on quite a downward spiral - and now it's dropped again.
👉 Background: Most of us are familiar with Zip Co, the Aussie BNPL platform. It listed on the ASX in 2015 and, at its peak, Zip’s share price was up 61 times its IPO price!
👉 What happened: The entire BNPL industry's taken a tumble lately. And, Zip’s share price has been on quite the downward trajectory since the start of the year.
👉 What else: Zip's share price dropped another 8% after analysts at UBS raised the alarm about Zip’s financial future. They said Zip had way too much bad and doubtful debt.
💡Bad debt is what happens when ya lend someone money in good faith, but realise ya won't see that cash again. In technical terms, bad debt is an expense incurred by businesses when a customer doesn’t pay back a loan.
💡 The loan then becomes a write-off. In Zip's case, write-offs increased by a whopping 388% year-on-year in the first half of 2022 to $121 million.
💡As BNPL companies continue to grow their customer base, the average quality of their customers, from a debt perspective, generally tends to drop. And with experts thinking this bad debt will continue to rise, we can see why shareholders got spooked.
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