Zip Shares Shoot Higher On Breakthrough Amazon DealNovember 07 2019
Retail giant Amazon has finally opened its doors to the buy now, pay later sector with the announcement of a strategic alliance with Afterpay Touch rival Zip Co on Thursday.
Zip confirmed that both its buy now, pay later service, Zip Pay, and its personal loan service, Zip Money, will be available to Amazon's Australian customers. The deal could also result in Amazon ending up with a 4 per cent stake in Zip.
Zip shares jumped as much as 24 per cent during the session before closing 17 per cent higher at $4.02.
“We are thrilled to have secured this strategic agreement with Amazon Australia, providing customers with a more flexible way to pay,” said Zip chief executive Larry Diamond.
Amazon said it offers instalment payment options for customers in the US, UK, Germany, France, Japan, Turkey, Mexico, Brazil and India and that some of these have used external parties.
Analysts have excluded Amazon's online market share in the US and UK from Afterpay's addressable market opportunity on the grounds that the retail giant was expected to rely on its own service.
Amazon declined to say whether it has plans to team up with other instalment payment companies here.
Zip said it will issue warrants to an Amazon affiliate for 14.6 million shares at a strike price of $4.70 which will vest based on processing volume milestones, representing a potential investment of more than $68 million.
Zip shares hit a record high of $5.53 last month but have fallen sharply in recent weeks along with other high-profile tech stocks.
A recent research report from UBS poured cold water on "optimistic" expectations of Afterpay's future market share in the US.
Zip shares also suffered after a recent quarterly trading update revealed its margins declined for the quarter amid tough competition.
"The margin decreased very slightly," said Zip co-founder Peter Gray.
"It’s a very competitive sort of world out there, but I think we’re really well placed."
In August Zip warned of heightened competition, margin compression and increased marketing expenses as new entrants vied for market share.
Kruger, C. (2019, November 7). Zip shares shoot higher on breakthrough Amazon deal. Retrieved from https://www.theage.com.au/business/companies/zip-shares-shoot-higher-on-breakthrough-amazon-deal-20191107-p538c8.html