ASX:ZIP. Strong growth potential in digital payments despite increased competitive pressure.

by Ella Walker

Analyst

29 December 2025

Fund managers emphasize Zip Co's growth potential in the underpenetrated US market, highlighting risks linked to bad debts and economic uncertainty.

Key Takeaway

Fund manager sentiment towards Zip Co Ltd is broadly cautious amid ongoing market volatility and increased concerns about US consumer credit quality. While the company demonstrates strong growth potential in the underpenetrated US buy-now-pay-later market, risks persist around market sentiment and credit performance. A key takeaway is the company's ability to upgrade earnings guidance; however, a key risk is the uptick in bad debts, which may influence investor confidence.

Investment Analysis of Zip Co Ltd: Navigating a Volatile Market

Recent Performance Overview and Market Changes

As of January 2025, Zip Co Ltd (ASX: ZIP) has demonstrated significant fluctuations in share price, recently falling to approximately $2.44, marking a 17.6% decline in January. This downturn followed a disappointing December quarterly update that did not meet market expectations. Despite challenges, fund manager Blackwattle Investment Partners remains optimistic about the company's substantial growth potential in the U.S. market, reporting a 39% increase in total transaction value (TTV).

Market Sentiment and Investor Observations

Market sentiment has recently turned cautious, particularly after the announcement of founder Larry Diamond's transition to an advisory role, which introduced uncertainty regarding future leadership direction. Fund manager Clime has noted that, despite these concerns, Zip remains well-positioned within the rapidly growing U.S. Buy Now, Pay Later (BNPL) sector. Current investor focus includes monitoring U.S. consumer sentiment and operational efficiencies, as deteriorating sentiment has led to increased selling pressure according to fund manager Ten Cap.

Financial Performance and Growth Outlook

The strong performance witnessed in the U.S., highlighted by a 39% growth in active customer numbers and cash EBTDA generation of $35 million (+50% year-on-year), reflects the underlying resilience of Zip’s business model. However, operational expenses and revenue margin declines have raised concerns among investors. Blackwattle emphasizes the importance of viewing these aspects through a long-term lens, as the expected total addressable market in the U.S. remains under-penetrated at approximately 2%, compared to more mature markets like Australia and Europe.

Strategic Insights and Forward Guidance

Fund managers are watching closely as Zip prepares for a refresh in strategy amidst macroeconomic uncertainties, notably tariff issues and consumer credit trends. The company's recent results, coupled with disciplined cost management, position it favorably. Current evaluations suggest Zip trades at only 25x FY26 estimated P/E, with an anticipated EPS growth exceeding 40%. This valuation, framed against growth prospects, renders Zip an appealing investment opportunity despite short-term fluctuations.

Conclusion and Company Positioning

As market conditions evolve, investors are encouraged to explore the potential upside of Zip Co Ltd. Fund managers, including Ausbil Investment Management, maintain a positive outlook based on the company's structural growth opportunities in the U.S. market. For detailed analyses and ongoing updates, visit the [Zip Co Ltd company page](https://www.thesis-tracker.com/companies/zip). Investors should be prepared for volatility while recognizing the substantial growth opportunities that underpin Zip's business strategy.