Zip Co Shares Climb Again as BNPL Lender Extends Rebound From Record Plunge Triggered by US Fraud Losses

Zip Co Ltd shares rose more than 6% on Thursday. The buy now, pay later lender extended its recovery from last week's record sell-off, which followed a costly fraud incident in its main U.S. market.

The stock closed at A$1.86, up 11.5 cents, or 6.6%, after trading between A$1.765 and A$1.865. It was the most actively traded stock among the day's top gainers, with more than 30.6 million shares changing hands. Zip's market value is about A$2.3 billion.

The company made no new price-sensitive announcement on Thursday. The gain adds to a rebound that began earlier this week as some investors and brokers argued the fraud-driven sell-off had gone too far.

From record low to rebound

Zip shares lost about 29% on Friday, Oct. 23, closing at A$1.46. It was the worst session in the company's history.

During that session the stock fell as much as 50.5% to A$1.025, a two-and-a-half-year low, as more than 92 million shares traded.

Since that close, the stock has recovered about 27%. It remains below where it traded before the fraud disclosure and is still down about 53.5% over the past 12 months.

What triggered the sell-off

The plunge came after Zip released its first-quarter fiscal 2027 results and disclosed what it called an "external fraud event" in the United States.

According to the company, fraudsters used legitimate credentials to open new accounts in a coordinated way, made transactions and never repaid them.

The incident cost about A$10.1 million in bad debts and fraud-mitigation expenses and temporarily reduced U.S. transaction volumes in July and August. Zip said it had notified authorities and lodged an insurance claim. It has not said how many accounts were involved or whether it expects to recover any losses.

Underlying growth still strong

Outside the fraud hit, the quarterly numbers showed solid growth:

Total transaction volume: up 18% to A$4.6 billion Total income: up 17% to A$376.1 million, about 2% above analyst consensus U.S. transaction volume: up 34.1% in US dollar terms, and up 41% year on year in September Cash EBTDA: A$65 million, or A$75.1 million excluding fraud costs Net bad debts: 1.97% of transaction volume, up from 1.65% a year earlier

The bad-debt ratio is near the top of Zip's target range of 1.5% to 2%. The company said it expects losses to ease in the second quarter but stay in the upper half of that range.

Zip reaffirmed its fiscal 2027 guidance of about A$340 million in group cash earnings, 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 results release.

Brokers back the stock

Several major brokers kept their positive ratings after the sell-off.

UBS reiterated its buy rating while cutting its earnings forecasts. "We reiterate Buy despite our lowered forecasts today as we see the stock down 30% an overreaction," the broker said.

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

Ord Minnett also confirmed a buy rating with a A$3.10 target, according to market reports.

Not every analyst was as relaxed. Citi questioned whether Zip's U.S. onboarding controls were adequate, and Jefferies said it wanted clarity on whether fraud costs would persist and what structural fixes the company planned.

Buyback support

Zip has also bought back its own shares on-market under its existing buyback program, according to market reports, which may have helped support the stock during the recovery. The company has not said how much it bought back over the past week.

Holiday season ahead

The key test for Zip will be the U.S. holiday shopping season, traditionally the busiest period for buy now, pay later providers.

The company plans to launch Zip Cash to selected U.S. customers over the holidays. It will also be under pressure to show that the fraud controls it has put in place are working and that U.S. bad debts are falling as forecast.

Thursday's gain shows investors are increasingly willing to treat the fraud as a one-off. The stock's 12-month performance, however, shows how much confidence the company still has to rebuild.

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