Zip Co Shares Rebound After Record Plunge Tied to US Fraud Attack

Shares in Zip Co, the Australian buy-now-pay-later lender, rose 14 percent on Monday, clawing back part of the record one-day loss the stock suffered three trading sessions earlier after the company disclosed that a coordinated fraud attack had hit its United States business during the quarter.

The stock closed up 20.5 Australian cents at A$1.665 on the Australian Securities Exchange, after sinking 29 percent on Friday — its worst single-day fall on record — when Zip released its first-quarter trading update for the three months to September 30. The update disclosed that fraudsters had used legitimate customer credentials to open new accounts in a coordinated way, ran up transactions, and never repaid them. On Friday, shares briefly sank as much as 50 percent intraday to a two-and-a-half-year low before recovering some ground into the close, a move Reuters reported erased roughly A$1.3 billion of market value in early trading.

A costly breach in the US

Zip said the fraud event was confined to its largest market, the United States, and that it had notified authorities and lodged an insurance claim. The company has not disclosed how many customer accounts were compromised or whether it expects to recover any of the loss. According to the filing, the incident added A$10.1 million (about US$7.2 million) in bad debts and fraud-mitigation expenses to the quarter, and temporarily slowed US transaction volume and new-customer growth in July and August.

The breach pushed net bad debts to roughly 1.97 percent of transaction volume, up from 1.65 percent a year earlier and near the top of Zip's own 1.5-to-2 percent target range. Even so, the underlying business kept growing: total transaction volume rose 18 percent to A$4.6 billion, and total income climbed 17 percent to A$376.1 million, slightly ahead of analyst consensus. Cash earnings before tax, depreciation and amortisation came in at A$65 million; stripped of the fraud costs, that figure was A$75.1 million, up nearly 20 percent on the same quarter last year.

• Total transaction volume: A$4.6 billion, up 18 percent
• Total income: A$376.1 million, up 17 percent
• Cash EBTDA: A$65.0 million (A$75.1 million excluding the fraud hit)
• Net bad debts: about 1.97 percent of transaction volume, versus 1.65 percent a year earlier
• US transaction volume and revenue: up more than 30 percent in US dollar terms

Zip reaffirmed its full-year earnings target of A$340 million in cash EBTDA for the 2027 financial year, a 26 percent increase on the prior year, along with its forecast of more than 30 percent US transaction-volume growth. Chief executive Cynthia Scott framed the quarter around the growth rather than the fraud loss.

"Customers are choosing to use Zip more often, driving strong top line growth," Scott said in the trading update.

Who feels it

The most immediate impact fell on shareholders. Friday's rout was, by percentage, its worst one-day fall on record, on more than 92 million shares traded — roughly double a typical session's volume. Even after Monday's bounce, the stock remains down about 58 percent over the past twelve months, leaving Zip with a market value of roughly A$2.1 billion, a fraction of the multi-year highs it touched earlier in the year.

US customers caught up in the fraudulent account openings face the more direct exposure, though Zip has not detailed how individual account holders are being made whole or whether any of them will bear losses. Merchants that rely on Zip's buy-now-pay-later product to drive sales — the company counts 96,600 of them, up 10 percent on a year earlier — are a secondary audience watching whether the incident changes how aggressively Zip underwrites new customers in its largest and fastest-growing market.

Analysts split on whether the selloff overshot

Wall Street and Sydney analysts broke into two camps. UBS and Macquarie both argued Friday's reaction was overdone and kept Buy-equivalent ratings, even as both trimmed estimates. Macquarie held its price target at A$3.50, arguing the fraud represented a one-off hit rather than a structural problem with Zip's lending model. UBS cut its forecasts for slower growth in Australia and New Zealand and a slightly higher medium-term bad-debt assumption, but still reiterated its rating, telling clients it viewed Friday's roughly 30 percent drop as an overreaction. Shares clawed back some of those losses on Monday after both notes circulated.

Not every analyst was as forgiving. Citi said the incident "raises concerns on Zip's onboarding controls," and Jefferies said it wanted clarity on whether the elevated fraud-related expenses would persist and what structural fixes Zip planned to put in place. Both flagged that the episode invites scrutiny of how easily fraudulent US accounts were opened in the first place, a question that goes to the core of any consumer-lending business built on rapid, low-friction approvals.

What comes next

Zip said it expects US bad debts to ease in the current quarter but to remain in the upper half of its target range, meaning the fraud's financial tail is likely to show up again, in smaller form, in the December-quarter update. The company is also pressing ahead with its US expansion regardless, including a planned rollout of a new product, Zip Cash, to selected American customers over the holiday shopping season — timing that puts fresh underwriting volume right alongside the unresolved fraud investigation.

The stock's rebound came against a steadier backdrop at home. The S&P/ASX 200 was little changed on Monday, and investors were looking ahead to the Reserve Bank of Australia's Tuesday meeting, where the central bank was weighing whether to raise rates again after holding its cash rate at 4.60 percent since late September, with third-quarter inflation data due Wednesday. For Zip, the more pressing test will be whether its second-quarter update, expected in the new year, shows the fraud losses were a one-off or the first sign of a broader credit-quality problem in its US business, which now accounts for the bulk of its growth.