Zip shares (ASX: ZIP) sat atop the ASX 200 leaderboard to start the week, closing at A$2.28 after a 5.56% gain on the session. The move builds on a recovery that has now delivered a 14% gain since the start of October, and was enough to push the stock back above its 30 day SMA of A$2.19, offering a tentative signal that near term pressure may be easing.
To put the move into context, the Zip share price remains 31.94% lower YTD, and 50.86% lower on a TTM basis despite the October bounce. The rebound, even if within a broader downtrend is the first positive sign of momentum on in a couple of months, and comes ahead of the company’s Q1 trading update on 23 October.
Is Sentiment Shifting in ZIP?
The immediate catalyst for today’s move was a research note from UBS, which reiterated a Buy rating, despite trimming its 12-month price target by 6% from A$4.70 to A$4.40. The target reduction reflects a higher risk-free rate assumption, lifted from 4.5% to 5.0%, and a 1% cut to Cash EBTDA forecasts to account for the prospect of additional rate hikes from both the Reserve Bank of Australia and the US Federal Reserve before the end of calendar year 2026.
Crucially, UBS argued that the approximately 20% decline in Zip’s share price over the past two months was an overreaction to macro headlines rather than a reflection of any meaningful deterioration in the company’s underlying business. At current levels, Zip trades on a forward price-to-earnings multiple of roughly 15 times, which UBS characterised as attractive for a business expected to deliver high-teens earnings growth. The implied upside from the current price of A$2.28 to UBS’s A$4.40 target sits at ~93%.
What To Expect
On the operational side, the numbers UBS is working with ahead of the October 23 update are encouraging. The bank forecasts US Total Transaction Volume growth of 35% year-on-year for Q1 FY27, comfortably ahead of the roughly 30% volume growth that BNPL peers have guided to for the September quarter. That outperformance, if confirmed, would suggest Zip is continuing to gain market share in its most strategically important geography.
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A key structural point underpinning UBS’s confidence in the US business is the composition of Zip’s transaction volumes. Non-discretionary spending categories, including healthcare, education, auto, and transport, now account for 65% to 70% of US TTV. This is a meaningful shift from the discretionary retail exposure that characterised earlier BNPL business models, and it provides a degree of insulation against consumer spending slowdowns driven by higher interest rates or softer employment conditions. UBS is forecasting 30% constant-currency TTV growth for the full FY27 year on the back of this mix.
Ahead of the formal quarterly update, analyst previews point to portfolio income of A$369 million and Cash EBTDA of A$76.9 million for Q1 FY27. If realised, those figures would represent a strong start to the financial year following Zip’s record Cash EBTDA of A$268.9 million in FY26. Credit quality metrics are also expected to remain within management’s stated target corridor. Net bad debts are forecast to tick up modestly from 1.77% in FY26 to 1.82% in FY27, staying comfortably inside Zip’s 1.5% to 2.0% target range.
Bulls and Bears Remain Split
The bull case for Zip at current levels rests on three pillars: a valuation that looks undemanding relative to growth, a US business that appears to be outperforming the broader BNPL sector, and a credit book that has so far absorbed the rate cycle without meaningful deterioration. The 15x forward P/E multiple is notably modest for a company UBS expects to grow earnings at a high-teens rate, and the non-discretionary tilt of US volumes adds a layer of defensiveness that was not present in Zip’s earlier incarnation as a discretionary retail payments tool.
The bear case, however, is harder to dismiss given the scale of the stock’s decline over the past year. The 50.86% TTM drawdown reflects genuine concerns about the durability of growth-stock valuations in a higher-for-longer rate environment, and the reduction in UBS’s own price target acknowledges that the cost of capital has moved against Zip and its peers. A further deterioration in the macro environment, particularly any meaningful rise in unemployment in the US or Australia, could test the credit book more severely than current forecasts assume. The incremental rise in net bad debts, from 1.77% to 1.82%, is small in isolation but represents a directional move that markets will monitor closely.
Zip shares have found something of a foothold for now, but with the stock still more than 30% below where it began the year, there are plenty of hurdles to overcome if momentum is to shift more conclusively. Eyes will turn to the Q1 update, with both sides of the bull/bear divide looking for data that supports their respective theses.
Bull Case:
- UBS sees 93% upside to A$4.40 target from current A$2.28 levels
- US TTV growth of 35% YoY outpaces BNPL peer guidance of around 30%
- Non-discretionary spend at 65-70% of US TTV adds meaningful defensive resilience
- 15x forward P/E looks undemanding relative to high-teens earnings growth outlook
- Stock reclaiming 30-day SMA signals potential short-term momentum reversal
Bear Case:
- Stock remains down 50.86% TTM, reflecting deep and sustained structural selling pressure
- UBS trimmed price target acknowledges rising cost of capital headwinds for growth stocks
- Net bad debts forecast to rise, signalling incremental consumer credit stress ahead
- Potential RBA and Fed rate hikes in CY26 could further compress growth-stock multiples
- Heavy overhead technical resistance from longer-term moving averages remains unresolved
