Credit Suisse raises its price target for Square by more than 80%

19 July 2018

Square shares will thrive as the company expands to new markets and builds upon its core payments offering, according to Credit Suisse.

The firm raised its rating on Square's shares to outperform from neutral, citing the increasing breadth of its product offerings for merchants.

"SQ’s evolution from a payment company to a differentiated consumer and merchant services platform increases our conviction that the company can extend its business well beyond micro-merchants to include SMB and middle-market companies," analyst Paul Condra said in a note to clients Thursday entitled "The World Is Square." “SQ’s growing product eco-system is increasing its ability to penetrate larger merchants, expanding its payment opportunity while adding incremental subscription and service revenue opportunities.”

The company's shares rose 3.8 percent in Thursday’s session after the report.

Condra noted the company has added point of sale software offerings for restaurants, hardware products, customer relationship management, analytics and payroll software on top of its payments solution.

He estimates Square only has 3 to 4 percent market share of the $2 trillion in payment volume generated by global small- to medium-sized businesses.

“We view the core payment opportunity as very large,” he said. “We believe crypto currencies are not going away and expect that over time they are likely to find more applicable use cases. While this is a small opportunity currently, we view SQ as among a handful of companies - and the only public one – at the forefront of shaping the evolution of this industry.”

The analyst raised his price target to $81 from $44 for Square shares, representing 19 percent upside to Wednesday’s close.

Square earnings: Cash may Boost your wallet more than the company — for now

July 31, 2018

Square Inc. got its start by enabling small businesses to accept credit-card payments, but its future could be more focused on Cash.

The company’s consumer-oriented initiatives are centered on money-transfer platform Square Cash, which now lets users do more than just send money to friends. Cash has received a fair bit of attention in recent quarters because it’s where Square houses bitcoin trading, but other elements of the platform could be more interesting to users without cryptocurrency. Cash made debit cards widely available to users a good year before PayPal Holdings Inc.’s Venmo did, and during the second quarter, Square officially rolled out Boost, a program that gives discounts at popular food establishments in exchange for use of a Cash card.

With Boost, a user can choose one of a few discounts to take advantage of in a given day, including 15% off Chipotle Mexican Grill Inc. or Shake Shack Inc. purchases, or 5% off at Whole Foods Market. The deals are attractive, and Square will presumably lose money on them in the near future. The bigger goal, however, is to get (younger) users to conduct more of their spending on Square’s card. In that case, Square might still lose money on these discounts but earn transaction fees on purchases made with the Cash card at other merchants.

MarketWatch wrote about an early version of this program, which was then just focused on coffee, back in March. At the time, Mizuho analyst Thomas McCrohan estimated that if Square could use coffee discounts to convince 5% of coffee-drinking millennials to conduct their food-away-from-home spending on the Cash card, it would generate $100 million in incremental revenue for the company annually within two years.

“No other generation spends as much of their annual food budget on meals ‘away from home,’” wrote McCrohan, who has a buy rating and $75 price target on the stock.

Square’s latest efforts arguably make the program more broadly appealing, and Boost might eventually expand beyond the U.S. The company brought Cash to the U.K. earlier this year, though Boost isn’t available there yet. Management may share more of its long-term strategy for Cash and the consumer business when Square reports second-quarter results after the close on Wednesday.

Also of interest will be any new statistics on the overall Cash app user base. Instinet analyst Dan Dolev, who has an $82 price target on the shares, said that he saw an acceleration in Cash app downloads in May and June, based on his recent analysis.

Earnings: Following the completion of its Weebly acquisition, Square in June projected adjusted earnings per share of 9 cents to 11 cents for the second quarter, up from 7 cents a year earlier. Analysts surveyed by FactSet expect adjusted EPS of 11 cents on average. According to Estimize, which crowdsources estimates from hedge funds, academics and others, the average projection calls for 12 cents.

Revenue: Square expects to report revenue of $744 million to $764 million for the second quarter, up from $551.5 million a year earlier. The FactSet consensus estimate is for $777.8 million, while the Estimize consensus is for $783.4 million.

Square issued an adjusted revenue forecast of $362 million to $367 million when it updated its outlook back in June. The FactSet consensus calls for $366.4 million, up from $240.4 million in the year-ago quarter. Adjusted revenue subtracts transaction costs.

What else to watch for

Investors will be looking for updates on Square’s efforts to expand internationally. The company has operations in the U.K., Japan, Canada and Australia. Square Chief Financial Officer Sarah Friar said on a call with reporters last quarter that Square still had “a lot of work to do” in terms of building brand awareness in the U.K., though she said that events were helping the company boost its image in Australia.

Also in regards to the U.K., management may comment on a recent regulatory review taking place there. News of this review, which is in the early stages and focused on merchant acquirers, prompted a selloff earlier this week in shares of Square, Global Payments Inc. and other payments companies that process transactions on behalf of merchants.

Analysts generally deemed the selloff overblown, with at least one suggesting the review could actually help Square.

“While incumbent providers may face more of an uphill battle, we believe regulation could be positive for both Square and PayPal as they work to penetrate the brick-and mortar U.K. market,” wrote Credit Suisse analyst Paul Condra, who recently upgraded Square’s stock to outperform from neutral. He has a price target of $81 (a perfect square) on the stock.

Square’s Capital loan business will also be in focus when the company reports second-quarter results, especially since eBay Inc. and Square recently announced an arrangement through which eBay sellers would be able to access capital through Square.

“We believe the eBay/Square partnership will benefit both companies as the collaboration will enhance the financing process for eBay’s sellers as well as help Square expand its reach in non-Square merchant lending,” wrote Stifel analyst Scott Devitt, who rates the stock a buy. He raised his price target Monday to $72 from $66.

Square Stock Is Plunging After a Steadfast Bear Raised a New Alarm

Oct. 8, 2018 12:56 p.m. ET

Square’s most steadfast bear is increasingly worried about the company’s interest in the lending business. And Square stock plunged almost 10% in afternoon trading on Monday, putting it on track for its biggest one-day drop since Nov. 27, 2017.

BTIG analyst Mark Palmer expressed skepticism on Monday about the company’s latest move, which will let consumers obtain credit from Square (SQ) to make big-ticket purchases from some sellers. Square last week announced the launch of Installments, a customer-lending option that provides loans of $250 to $10,000 for those its algorithms deem creditworthy.

Palmer argued Monday that Installments “adds to Square’s overlooked credit risk.” He’s long been concerned about how Square Capital, which once just focused on merchant lending, would fare during a downturn.

“The company’s increasing dependence on the extension of credit to its customers to spur its growth has made its business model increasingly vulnerable to volatility in the credit markets,” Palmer wrote.

A Square spokesperson said that the main goal of Square Installments is to help the company’s sellers grow. The company also said that its risk management is based on real-time data and that the loans are typically of smaller sizes and shorter durations than traditional business loans.

Square Capital is a fast-growing area of the payment processor’s business, and the company said that it facilitated $390 million in loans during the June quarter, up 22% year-over-year. Capital is part of Square’s subscription-and-services segment, which grew revenue 127% in the company’s last-reported quarter.

Square’s “expanding dependence on credit as a driver of growth ultimately will weigh on its multiple,” Palmer wrote. He’s maintained his bearish stance throughout the stock’s big rally: He established his sell rating and $30 target back in late November, and the stock has more than doubled since then.

His price target is the lowest listed on FactSet. Just four of the 37 analysts who cover Square shares rate them at sell.

Also on Monday, Buckingham Research analyst Chris Brendler chimed in on the launch of Installments, taking a more positive view. The emergence of a consumer-lending product “only reinforces our previous bull case thesis” that Square’s high-margin services offerings will continue to drive substantial growth, he wrote.

Brendler kept his buy rating and $105 price target on the stock.

Square Earnings: What to Watch

Nov 5, 2018

Revenue growth

After five quarters in a row of accelerating revenue growth, you can bet investors have high hopes for the company's top line for yet another quarter.

In Square's second quarter, revenue was up 48% year over year -- an acceleration from 45% revenue growth in the first quarter of 2018. The company's adjusted revenue increased 60% year over year -- up from 51% growth in Q1.

For Square's third quarter, analysts expect Square to report adjusted revenue of $414 million, up 61% year over year.

Gross payment volume from large sellers

One of the key areas of Square's business that has been helping propel growth is the company's ability to attract what Square calls "larger sellers," or sellers that generate over $125,000 in annualized gross payment volume.

In Square's second quarter, gross payment volume from larger sellers increased 42% year over year, significantly outpacing 30% year-over-year growth for Square's overall gross payment volume. Large sellers have become important to Square: They accounted for 50% of total gross payment volume during the quarter, up from 46% in the year-ago quarter.

Square's late 2017 launch of its high-end point-of-sale device -- Square Register -- and its new Square for Restaurants platform should help Square continue attracting droves of new large sellers.

Subscription and services-based revenue

Square's subscription and services-based revenue, which is comprised of revenue from Instant Deposit, Caviar, Square Capital, Payroll, and other subscriptions and services, has been on a tear recently. In the company's second quarter, subscription and services-based revenue skyrocketed 127% year over year. This was a sharp acceleration from 98% growth in Q1.

To be fair, the acceleration in Square's subscription and services-based revenue benefited from the company's recent acquisitions of Zesty and Weebly, but management said in the company's second-quarter earnings call that subscription and services-based revenue growth still accelerated when excluding these acquisitions.

Investors will get to check on these areas of Square's business when the company reports earnings this week. Square's third-quarter earnings release will be posted to its investor relations website after market close on Wednesday, Nov. 7.

Shares of Square Inc. fell more than 6% in the extended session Wednesday after the payments company reported better-than-expected third-quarter adjusted earnings and sales, but forecast fourth-quarter adjusted earnings below analyst forecasts.

Square tweaked higher its 2018 guidance, and said it expects fourth-quarter per-share adjusted earnings between 12 cents and 13 cents, contrasting with Street expectations of an adjusted EPS of 15 cents for the fourth quarter.

Square increased its forecast for 2018 adjusted revenue to between $1.569 billion and $1.574 billion, compared with a previous guidance of adjusted revenue between $1.52 billion and $1.54 billion. The company said it expects adjusted EPS between 45 cents and 46 cents for 2018, versus an earlier expectation of adjusted EPS between 42 cents and 46 cents.