Zip Co Surges 28% in 3 Months: Is the BNPL Recovery Real or Another False Start?

Zip Co (ASX: ZIP) has delivered one of the more impressive turnarounds on the ASX this year, climbing 79% over the past 12 months and gaining roughly 28% in the most recent quarter. The catalyst behind renewed investor confidence? A combination of strong US market performance, a meaningful shift to profitability, and news that the company is considering a dual listing on the Nasdaq to tap deeper pools of American capital. For investors who watched the BNPL sector nearly collapse in 2022, the question now is whether this recovery represents a genuine business transformation or simply another cyclical bounce that could fade as quickly as it arrived.

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The BNPL Sector Shifts from Crisis to Profitability

The buy-now-pay-later sector crashed between 2021 and 2023, with Zip’s share price falling from above $12 to around $1. The market questioned whether BNPL providers could ever turn a profit as rising rates exposed unsustainable models and mounting credit losses.
We believe the answer is now clear: selective BNPL providers can be profitable. Zip reported cash EBTDA of $170.3 million in FY25, more than double the previous year and ahead of expectations. This wasn’t just revenue growth (transaction volume rose 30% to $13.1 billion); it reflected genuine operational leverage through margin improvement and cost control.

The US market drives this turnaround. American operations contribute over 80% of divisional cash earnings, with volumes growing above 40% year-on-year. Critically, bad debts have stabilised at 1.5% of transaction value, significantly better than the 2-3% levels that spooked investors during peak growth. This suggests Zip prioritises credit quality over growth at any cost, a distinction that matters for sustainability.
The broader BNPL sector is recovering, with global transaction values projected to hit $560 billion in 2025 (up 13.7%). But competition remains fierce. Affirm, Klarna and Afterpay all fight for share, meaning Zip’s differentiation through credit management and integration will determine whether this recovery lasts.

US Dual Listing: Smart Strategic Move or Valuation Gamble?

Zip’s Nasdaq listing consideration is a smart strategic move, though not without risks. With 80% of cash earnings from the US and offshore investors holding 16% of shares, American markets are the natural next step.
The valuation opportunity is real. Affirm trades at a $22 billion market cap despite having fewer active users than Zip in some categories, suggesting US investors pay a premium for US-focused BNPL stories. Rival Sezzle delisted from the ASX for Nasdaq in 2023 and gained 85% over six months.
However, this isn’t risk-free. Zip will face heightened US regulatory scrutiny around consumer protection and credit reporting. The company must also manage dual-listing complexity and ongoing Nasdaq compliance. If the US business stumbles or regulatory pressure intensifies, a Nasdaq presence could amplify volatility rather than reduce it.
Management is backing this bet with FY26 guidance for 35%+ US transaction volume growth. Time will tell if American investors reward the confidence.

Final Takeaway

At around $4, Zip trades at a P/E ratio of 54 times. What this means for investors: you’re paying $54 for every $1 of current earnings, a premium that only makes sense if growth stays very strong and margins keep expanding.
The stock appears expensive relative to current profitability but reasonably priced if Zip can sustain high-30s growth and expand margins to low teens. Three indicators will determine if this recovery is real:

– First, whether US transaction volume growth stays above 35% through FY26. This is the growth engine.
– Second, whether bad debt ratios remain below 2% despite expansion. Credit discipline separates sustainable BNPL from the failures of 2021-22.
– Third, whether the Nasdaq listing materialises with a positive investor reception. This validates management’s strategic vision and unlocks valuation.

Our take: Conservative investors should wait for further evidence across multiple quarters. For growth investors with higher risk tolerance, Zip offers leveraged exposure to point-of-sale financing’s structural shift, but only if management maintains credit discipline while scaling. The next 12 months will be decisive.