Un-Z1P your pants and dip into this

There has been a monumental shift within the buy now, pay later scene with companies consolidating in a recent blitz of mergers and acquisitions. Confidence in this sector has been diminishing as big players like Z1P (ASX: Z1P) have come back to earth, falling as much as 90% since their all-time highs.

Following the Block (ASX: SQ2) acquisition of Afterpay (formerly ASX: APT) earlier this year and the acquisition of Humm’s (ASX: HUM) consumer division by Latitude Group (ASX: LFS), it seems that these companies have been scrambling to keep their new customer acquisitions rolling in to please shareholders. 

In a recent round of funding, Zip Co (ASX: Z1P)  was hoping to raise $50m in a Share Purchase Plan (SPP) with an offer price of $1.90. Looking at the recent chart for Z1P, $1.90 would have looked quite far fetched for eligible shareholders as the stock is trading nowhere near the prices of the first half of 2021. To avoid a pointless raise, the Company confirmed that the final issue price would instead be $1.48. In the end, the SPP raised $23.9m, which is not quite the success the Company was hoping to achieve, but far more than would have been raised at $1.90 per new share. 

Z1P’s most recent annual report wasn’t as charming as investors hoped. The Company has taken on a swath of bad debts, increasing to 3.53% from 2.35% year-over-year – writing off nearly $74.5m in bad debts, up from $27.8m the year before. The Company reported a net loss before tax of $724m – churning through cash in order to sustain the image of one of the largest BNPL companies globally. 

The primary strategy for the Company has been global expansion, now operating in over 12 markets, and hoping that this recent slump is only short-lived. In a recent announcement, Z1P targeted Sezzle (ASX: SZL) with the goal of acquisition. Sezzle, based in the United States, was a minor player in the BNPL scene but had a considerable foothold in the U.S. – but also faced similar issues with bad debts and increased net losses after tax YoY. The combination of the two companies resulted in pro forma 8.8m customers and opened the books to pro forma 60.5k merchants in the U.S. 

“We are delighted to be bringing Zip and Sezzle together under a transformational transaction that is expected to deliver immediate scale and enhanced growth, which will support our path to profitability. Combining with Sezzle positions us as a leading global BNPL provider and prioritises our ability to win in the important U.S. market,” said Larry Diamond, Co-Founder and Global CEO of Zip

For this industry to survive, it won’t be about the smaller and larger players operating independently but merging together, who will survive?