Zip's Strategic Share Buyback and U.S. Expansion: A Pathway to Valuation Growth in the BNPL Sector

The buy-now-pay-later (BNPL) sector is undergoing a transformative phase, with Zip Co (ASX:ZIP) emerging as a strategic player through its dual focus on capital efficiency and geographic expansion. As of August 2025, Zip's $50 million on-market buyback program has already repurchased 13.4 million shares, reducing its float by over 10% and signaling management's confidence in the company's intrinsic value. Simultaneously, the firm's U.S. operations—its largest market—have driven a 40% year-on-year surge in transaction volumes, underpinning an upgraded 2025 cash EBITDA guidance of at least $160 million. This article examines how Zip's capital allocation and U.S. market access position it for valuation growth in a sector projected to reach $367.85 billion by 2030.

Share Buybacks: A Catalyst for Earnings Per Share (EPS) Growth

Zip's buyback program, initiated in April 2025, reflects a disciplined approach to shareholder value creation. By repurchasing 12.3 million shares by mid-August, the company has already deployed $22.6 million of its $50 million allocation, with $27.4 million remaining to further reduce shares outstanding. This strategy directly enhances EPS, as fewer shares mean higher earnings per unit. For context, Zip's trailing twelve-month (TTM) revenue stands at $951.74 million, but its net loss of $44.09 million (TTM) highlights the need for cost discipline and capital efficiency. The buyback program, combined with a 20% workforce reduction in 2024, underscores Zip's pivot from aggressive expansion to sustainable profitability.

U.S. Expansion: Tapping into a $170 Billion Market

The U.S. BNPL market, valued at $170.32 billion in 2025, is a critical battleground for Zip. CEO Cynthia Scott's emphasis on U.S. growth is well-founded: the market's 16.65% CAGR through 2030 offers a runway for scale. Zip's Quadpay platform, which caters to Gen Z and Millennials with interest-free installments, has gained traction among merchants and consumers. The firm's U.S. transaction volumes now account for over 60% of its total, a testament to its ability to compete with industry giants like Affirm and Klarna.

However, Zip's U.S. strategy is not without challenges. Affirm, with $2.8 billion in 2024 revenue and a $19.21 billion market cap, dominates the U.S. market through partnerships with Amazon and Shopify. Klarna, though privately held, has a $14.2 billion valuation and a 93 million active user base. Zip's current market cap of $4.989 billion places it in a second-tier position, but its focus on cost optimization and niche markets (e.g., healthcare and travel) could differentiate it.

Valuation Metrics: A Tale of Two Strategies

Zip's P/E ratio of -54.50 (TTM) reflects its unprofitable status, but this metric must be contextualized against its peers. Affirm's P/E ratio of -153.438 and Klarna's implied valuation of $14.2 billion suggest that both firms are valued for future growth rather than current profitability. Zip's enterprise value-to-revenue ratio of 6.52 is lower than Affirm's 6.86, indicating a potential undervaluation if the company can achieve profitability.

Strategic Risks and Opportunities

While Zip's buyback and U.S. expansion are compelling, risks persist. Regulatory scrutiny from the Consumer Financial Protection Bureau (CFPB) could impact BNPL models, and rising interest rates may dampen consumer spending. Additionally, Zip's reliance on the U.S. market exposes it to regional economic volatility.

Yet, Zip's strategic acquisitions and expansion into the Philippines and Canada offer diversification. Its recent $50 million buyback also signals a commitment to returning capital to shareholders, a move that could attract value investors.

Investment Thesis

For investors, Zip presents a high-conviction opportunity in a high-growth sector. The buyback program, if executed fully, could boost EPS by 15–20% by year-end. Meanwhile, the U.S. market's scale and Zip's cost-cutting measures position it to capture market share from underperforming rivals. However, patience is required: Zip's path to profitability hinges on its ability to maintain credit discipline and expand its merchant network.

Recommendation: Investors with a 2–3 year horizon should consider a position in Zip, with a stop-loss at $1.20 (AUD) and a target of $1.80 (AUD) based on its buyback-driven EPS growth and U.S. market penetration.

In conclusion, Zip's strategic buyback and U.S. expansion are not just tactical moves—they are foundational to its long-term valuation potential. As the BNPL sector matures, Zip's ability to balance growth with capital efficiency will determine its success. For now, the cards are in its favor.