The buy now pay later company Zip Co (ASX: Z1P) rallied 10% today, on the back of announcing an acquisition of PartPay. The PartPay acquisition will help the company diversify into new geographies like the UK, US and South Africa, giving Zip easy access to the company’s base of more than a hundred thousand customers. International expansion was the main driver of Afterpay’s (ASX: APT) rally from $5 to over $25 today, so it is clear why investors are excited about the development.
Having started much earlier, Afterpay has a head start on Zip Co in offshore markets, so it remains to be seen how quickly Zip Co gains traction. If it does however, the potential for a multiple re-rate is appetising. Investors who are confident in Zip Co’s management and their ability to execute on the company’s international expansion strategy would do well to keep the business on their watchlist.
FlexiGroup (ASX: FXL), and Afterpay (ASX: APT) are also up on the day, as the development contributed to bullish sentiment towards the industry. Smaller competitors didn’t fare as well however, with Sezzle Inc. (ASX: SZL) declining 4% and Splitit (ASX: SPT) being unchanged on the day.
The prevailing view amongst investors in the sector is that the industry can support a few core businesses, which will develop competitive advantages from having a large amount of customer data from which credit models can be continually improved. The companies that are the most efficient at this process will be more attractive to merchants, given they can reduce fees through minimising losses arising from customer defaults.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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