Zip Co Shares Rebound 14% After Record Plunge as Bargain Hunters Return Following US Fraud Hit to BNPL Lender

Zip Co Ltd shares jumped more than 14% on Monday. The buy now, pay later provider won back part of Friday's record sell-off, which followed its disclosure that a coordinated fraud attack in the United States had pushed up bad debts and cut into quarterly earnings.

Zip shares rose 20.5 Australian cents, or 14.04%, to A$1.665. In the session they traded between A$1.48 and A$1.675. More than 43.4 million shares changed hands, which made Zip one of the most actively traded stocks on the Australian Securities Exchange. The rise lifted the company's market value to about A$2.1 billion.

Even after the rebound, the stock is down about 58% over the past 12 months.

The S&P/ASX 200 index was up 0.13% at 8,806.8 at 2:22 p.m. Sydney time. Energy and mining stocks led the market, while banks and retailers lagged.

Worst day on record

Monday's gain came after Zip's worst trading session on record. On Friday the shares fell about 29% to close at A$1.46. Earlier that day they had dropped as much as 50.5% to an intraday low of A$1.025, a two-and-a-half-year low. More than 92 million shares traded that day.

The sell-off followed Zip's trading update for the first quarter of fiscal 2027, the three months to Sept. 30. In it, the company disclosed what it called an "external fraud event" in the United States, its largest market.

According to the company's update and market reports, fraudsters used legitimate credentials to set up new accounts in a coordinated way. They then ran transactions on those accounts and never repaid them. Zip said the incident cost about A$10.1 million (roughly US$7.2 million) in bad debts and fraud-mitigation expenses. It also said US transaction volumes dipped temporarily in July and August.

Zip has notified authorities and lodged an insurance claim. It has not said how many accounts were involved or whether it expects to recover any of the losses.

Growth story intact, company says

Apart from the fraud, the quarter showed continued growth:

Total transaction volume rose 18% to A$4.6 billion. Total income rose 17% to A$376.1 million, about 2% ahead of analyst consensus. US transaction volume and revenue grew 34.1% and 32.0% respectively in U.S. dollar terms. US transaction volume was up 41% year on year in September alone. Cash earnings before tax, depreciation and amortisation were A$65 million, below the roughly A$76.9 million analysts had expected. Excluding fraud costs, the figure was A$75.1 million.

Net bad debts rose to 1.97% of transaction volume, from 1.65% a year earlier and above consensus of about 1.80%. That puts the ratio near the top of Zip's 1.5% to 2% target range. Zip expects bad debts to fall in the second quarter but stay in the upper half of the range.

The company reaffirmed its fiscal 2027 targets, including full-year cash earnings guidance of A$340 million, which would be a 26% increase.

"Customers are choosing to use Zip more often, driving strong top line growth," Chief Executive Cynthia Scott said in the update.

Zip also plans to launch Zip Cash to selected US customers over the holiday season.

Brokers split on the damage

Analysts disagreed on how lasting the damage would be.

UBS kept its buy rating and argued the sell-off had gone too far. "We reiterate Buy despite our lowered forecasts today as we see the stock down 30% an overreaction," the broker said in a note quoted by The Motley Fool. UBS cut its earnings forecasts to reflect slower transaction growth in Australia and New Zealand and a slightly higher medium-term bad debt ratio. It said it was comforted that second-quarter momentum looked to be improving.

Macquarie described the fraud as a temporary earnings hit rather than a structural problem. "Our rating continues to be underpinned by Zip's strong growth prospects and attractive unit economics," it said. Macquarie has a price target of A$3.50.

Other brokers were more cautious. According to market reports, Citi questioned whether Zip's US customer onboarding controls were adequate. Jefferies said it wanted clarity on whether higher fraud-related costs would persist and what structural fixes the company planned.

A volatile year

Zip shares have been volatile for the past year. They rallied to multi-year highs before retreating sharply as investors questioned credit quality and the sustainability of growth in the competitive US market, where Zip competes with Affirm, Klarna and PayPal's pay-later products.

Monday's rebound came as investors also weighed the domestic economy. The Reserve Bank of Australia meets on Tuesday, Melbourne Cup Day. Markets were pricing a better-than-even chance that the central bank would raise its 4.60% cash rate, ahead of third-quarter inflation data due Wednesday. Higher interest rates can raise funding costs and add pressure to household budgets, and both matter for consumer lenders.

Analysts expect investors to watch Zip's second-quarter update closely for evidence that bad debts are easing and that the fraud losses were a one-off.

This article is for information only and does not constitute financial advice.