With ASX Q4 trading updates now coming thick and fast, Zip Co (ASX:Z1P) got things started for the BNPL sector this morning.

The company flagged quarterly transaction volumes of $1.8bn which flowed through to revenues of $129.9m — both record highs.

That’s indicative of a transaction margin of around 7%, while customer numbers rose to 7.2m (up 87% y/y), Z1P said.

However, the market wanted more.

Z1P shares fell by almost 8% through afternoon trade as the stock dipped back below $7.

And in its synopsis of the results, resident BNPL bear UBS bank said the result amounted to a “significant volume miss” relative to its forecasts.

Zip Co growing pains

“While Zip’s top line metrics continue to show high growth in absolute terms, 4Q21’s volumes were below expectations,” UBS said.

ZIP’s total transaction volume (TTV) in the US came in at US$660.2m, 15% shy of UBS’ estimate of US$775m.

Closer to home, its $893.5m print for TTV in Australia and New Zealand (ANZ) was around 10% short of UBS’ $990m forecast.

The bank has a Sell rating on Zip Co (to say nothing of its views on Afterpay), with a price target of $5.60.

Following today’s selloff, Z1P is trading closer to that level than its 2021 highs above $11 back in February.

Factoring in its 7% transaction margin, UBS said Z1P’s revenues for the ANZ region actually beat its expectations ($61.4m/$57.2m).

However, revenues in the US fell short by around $7m ($64.3m/$71.6m).

“Without reading too much into one quarterly result, it is clear to us the momentum in the US in particular has slowed considerably versus expectations,” UBS said.

The bank flagged slowing growth in its metric of TTV/active customers, which fell to $150 in Q4 from $156 in Q3, even though the June quarter is typically a stronger season for retail sales.

The share market reaction to Z1P was perhaps indicative of the pressure on BNPL stocks to maintain their post-COVID growth rates as the global economy emerges from the pandemic.

And in light of today’s selloff, the BNPL sector looks likely to come under increased scrutiny over the course of FY21 reporting season.