Zip Co Shares Find Support After Brutal Sell-Off

Zip Co shares (ASX:ZIP) rebounded sharply today, climbing 9.88% to close at A$1.78, as buyers once again stepped in to defend the critical A$1.60 support level that has emerged as a key battleground for sentiment following the stock’s dramatic 27.64% decline over the past month.

The buy-the-dip move marks the latest in a series of volatile swings for the embattled buy-now-pay-later provider, which has shed 46.87% of its value in 2026 after a brutal earnings-driven sell-off in mid-February reset market expectations and triggered one of the steepest single-day declines in the company’s history.

Signs of Stabilisation at ZIP?

Thursday’s 9.88% gain to A$1.78 represents a meaningful technical recovery from the low-A$1.60s zone that has repeatedly attracted buying interest over the past fortnight.

The A$1.60 area has now been tested multiple times since the post-earnings collapse, with each successive test drawing in fresh demand, a pattern that suggests at least some market participants view the current valuation as compelling relative to the company’s underlying earnings power and strategic positioning.

The current volatility stems directly from Zip’s first-half fiscal 2026 results, released on 19 February, which delivered a jarring mix of strong backward-looking performance and disappointing forward guidance that sent shares plunging as much as 40% intraday to lows near A$1.72.

Operationally, the numbers were impressive. Total income climbed approximately 29% year-on-year to around A$664 million for the six months ended 31 December 2025, while total transaction volume surged 34.1% to A$8.4 billion. Cash EBTDA jumped 85.6% to A$124.3 million, with operating margin expanding from 13.0% to 18.7%. Net profit from continuing operations more than doubled, rising 128% to approximately A$52 million.

The company’s US business which now represents 75% of group transaction volume, continued to power growth, with transaction volumes and revenue both expanding more than 40% in US dollar terms. Active customers grew 4.1% to 6.6 million, while the merchant network expanded 10.5% to 90,600 partners.

Strategically, Zip highlighted the scaling of its Pay-in-2 product in the United States, completion of a A$100 million on-market share buyback in December 2025 at an average price of A$2.86 per share, and submission of a confidential draft registration statement to the US Securities and Exchange Commission for a potential dual listing. Chief Executive Cynthia Scott is set to relocate to the United States in the second half of 2026 as the company doubles down on its largest growth market.

The Problem: Stalling Earnings Momentum and Margin Pressure

Despite the strong results, markets reacted violently to guidance that second-half fiscal 2026 cash EBTDA would be “broadly in line” with the first half, implying little to no sequential earnings growth despite what should be seasonally stronger trading conditions.

While management upgraded full-year fiscal 2026 guidance for cash EBTDA margin and operating margin as a percentage of transaction volume, the flat second-half earnings trajectory was interpreted as a significant growth deceleration that undermined the premium valuation the stock had commanded.

Compounding concerns, revenue margin compressed from 8.2% to 7.9% as the lower-margin US business grew its share of the mix, and net bad debts edged up to approximately 1.7% of transaction volume from around 1.6% in the prior period. While the bad-debt rate remains within management’s stated target range of 1.5% to 2.0%, the directional move heightened sensitivity to credit risk in a higher-rate environment.

Analytical commentary following the result highlighted Zip’s high leverage profile, with estimated debt-to-equity ratios above 340% and interest coverage near 1.7 times, leaving limited buffer if credit losses rise or funding costs move adversely. Broker notes pointed to US net transaction margin falling from 3.7% to 3.1%, suggesting that rapid growth in Zip’s core market is becoming more capital-intensive with tighter unit economics.

Support Holds For Now, but Fundamentals Must Follow

The immediate question for markets is whether the A$1.60 support zone represents a durable floor or merely a temporary staging post in a longer downtrend. Bulls point to strong underlying earnings growth, improving profitability, the scale and momentum of the US franchise, and visible capital support from buybacks, insiders and institutions as evidence of a mispricing opportunity.

Bears counter that the primary driver of the collapse, namely concerns around stalling earnings growth, margin compression and rising credit risk, remains unresolved, and that a A$50 million buyback cannot offset structural headwinds in a more competitive and regulated buy-now-pay-later landscape. The stock’s history of sharp rallies followed by steep corrections adds to caution that current price action may still be part of a broader de-rating rather than the start of a sustainable recovery.