Shares of Australian buy now, pay later firm Zip Co plummeted by as much as 50.5% on Friday, reaching A$1.025 and marking the company’s worst intraday trading session in more than two years. The steep selloff wiped approximately A$1.30 billion, equivalent to $912.08 million, from the company’s market value during early trade before the stock managed to pare some of its losses.
The dramatic market reaction followed an announcement by Zip that an external fraud incident in the United States during its fiscal first quarter temporarily dragged down transaction volumes and new customer growth. The company reported that it identified and successfully contained the breach, which involved coordinated actors opening new fraudulent accounts by exploiting legitimate credentials to execute unpaid transactions.
In response to the security breach, Zip stated that it promptly notified relevant authorities and lodged an insurance claim. The incident generated A$10.1 million in cash operating expenses for the quarter.
Despite the disruption and subsequent defensive measures, Zip posted overall growth for the quarter ending September 30. Total transaction value rose 18% to reach A$4.6 billion, while cash earnings before interest, tax, depreciation, and amortisation increased by 3.4% to A$65 million.
However, financial institutions and analysts quickly flagged underlying concerns regarding the company’s operational metrics. Analysts at Citi noted that the incident raised specific concerns regarding Zip’s customer onboarding controls. Meanwhile, representatives from Jefferies pointed out that investors would require greater clarity on whether the elevated operating expenses will persist and what specific safeguards the firm plans to implement to prevent similar breaches in the future.
UBS analysts highlighted a sharper-than-expected rise in Zip’s net bad debts ratio, which came in at 1.97% of total transaction value, exceeding their internal estimate of 1.8%. The company’s official figures recorded net bad debts at 1.93% of total transaction value for the quarter. According to reports, this increase was partly driven by the fraud event, which temporarily slowed transaction value growth in July and August as the company instituted stricter containment and verification measures.
