When you think of SQ stock, both the coronavirus pandemic and cryptocurrency Bitcoin quickly come to mind. Now there's a big acquisition to mull for Square stock, not to mention a corporate rebranding.
In its core business, Square aims to build a two-sided digital payments ecosystem, with products designed for both merchant sellers and consumer buyers. The Square Cash App helps individuals manage money, buy stocks and more.
SQ stock had 44 million Cash App monthly active users at the end of 2021, up 22% from a year earlier. Cash App user growth is key to the outlook for SQ stock.
Square is diversifying on the merchant side. Merchants with less than $125,000 in annual payment volume represented only 34% of Square's gross payment volume mix in December, down from 57% in 2016, noted a UBS report.
SQ Stock: Earnings Due May 5, Investor Day May 18
Investors should note two upcoming events. First quarter earnings for SQ stock are due May 5. In addition, an investor day for Square stock is slated for May 18.
Square stock has retreated about 36% in 2022, rebounding a bit from an intraday low of 82.72 on Feb. 24. Institutional ownership has improved.
Square on Dec. 1 changed its name to Block(SQ), while retaining the ticker SQ. The company retains the Square brand for merchants that use its point-of-sale technology and services.
In part, the move reflects the company's commitment to blockchain technology, which underpins cryptocurrency. As of April 25, SQ stock has dropped 50% since the rebranding.
Square and Twitter (TWTR) had the same chief executive in Jack Dorsey. But Dorsey resigned as Twitter CEO on Nov. 29, ending the CEO-sharing arrangement.
Under Dorsey, Square has embraced cryptocurrency Bitcoin. Meanwhile, the price of Bitcoin has retreated 41% to near $39,700 since peaking above $68,000 in November.
At RBC Capital, analyst Daniel Perlin says Bitcoin is more than a consumer acquisition tool for SQ stock.
Square Stock: Afterpay Deal Falls In Value
In a recent report, Perlin said Block aims to build infrastructure that enables bitcoin-based commerce on its merchant platform. "Crypto/bitcoin remains a small and volatile contributor today, but could develop into a more cohesive strategy and financial contributor longer-term," he wrote.
Square on Jan. 31 closed the acquisition of Australia-based consumer lending startup Afterpay. Announced on Aug. 1, the deal was originally valued at$29 billion.With the big drop in Block stock, the deal was valued at less than $15 billion at closing.
Afterpay competes in the emerging "buy now, pay later" market that encroaches on credit card networks. One rival of Afterpay is Affirm Holdings (AFRM).
Some investors questioned whether Block needed to buy a BNPL company as opposed to building up its own capabilities or partnering. Competition is heating up in thebuy now, pay latermarket.
Block's 2022 guidance includes an expected $1 billion in Afterpay operating expenses. UBS analyst Rayna Kumar in a report said the "risk profile" of Afterpay has changed amid rising interest rates and the potential of increased regulation.
Block in January said it plans to build a system for bitcoin mining. In a tweet on July 15, Dorsey said the company will create a new business line to help developers build financial services products focused on Bitcoin.
Square in November said the Cash App will support "Taproot." It's a software upgrade to the Bitcoin blockchain that is intended to make the network more secure, flexible and scalable.
Square stock surged in 2020 during the coronavirus outbreak as investors focused on the growth of its consumer Cash App. They shrugged off worries over Square stock exposure to small businesses and restaurants that might close because of the coronavirus pandemic.
Square has closed the acquisition of a majority stake in Jay-Z's Tidalmusic streaming service for $297 million in cash and stock.
Block Stock: Investments Hiked In 2021
With multiple products, SQ stock faces stiff competition in both consumer financial apps and the small business market. Analysts expect Square's rivalry with PayPal Holdings (PYPL) to heat up in 2021 as theyimprove digital wallets.
What's more, Apple (AAPL) on Feb. 8 said it's rolling out a new iPhone app. The new app will turn iPhones into apoint-of-sale terminal. The service will allow merchants to accept contactless credit or debit cards.
Other rivals include First Data's (FDC) Clover unit, Shopify (SHOP), merchant acquirers, and well-funded startup Stripe.
Square disclosed a new $170 million investment in Bitcoin in early 2021 on top of its $50 million purchase in October 2020. The company reports Bitcoin holdings as unrealized gains on investments, and they will be excluded from adjusted earnings, analysts say.
The company also is interested in developing aBitcoin hardware wallet.
Cash App users are able to buy, hold and sell Bitcoin. Square's adjusted revenues from Bitcoin are sales to app users, minus the cost of purchasing the digital currency.
But Square's Bitcoin business has gross profit margins of only around 2%, analysts say.
Square Stock: Payments Ecosystem
For merchants, Square makes credit-card readers that plug into mobile devices. Its Square Capital division provides loans to sellers. While Square retains only 10% of Square Capital loans on its balance sheet, there's still a risk of defaults.
Prior to the Covid-19 outbreak, SQ stock analysts were divided on whether Square revenue growth would reaccelerate with margin improvement following a period of elevated investments. The Square Cash App, a peer-to-peer money-transfer service, competes with PayPal's Venmo, Zelle and others.
Amid the coronavirus pandemic, Cash App emerged as a digital alternative to traditional banks. Consumers used the Cash App's direct-deposit feature to receive government stimulus payments, for example. But Cash App gross profit growth slowed over the summer, analysts say, as stimulus programs expired.
Square is testing a short-term borrowing feature for Cash App users. Square offers loans of $20 to $200. Cash App users are expected to pay pack the loans in four weeks, with interest.
Also, the Cash App provides a stock trading feature. Cash App offers a debit card through a deal with Marqeta.
The bearish view is that Cash App's momentum proves transitory with low customer retention after the coronavirus pandemic eases.
The Square Cash app, Square Capital and Instant Deposit all contribute to the company's subscription and services revenue. One key for Square is cross-selling more services to its existing pool of merchants, analysts say.
To broaden its consumer platform, Square plans to buy Credit Karma's tax business for $50 million in cash. It's a free service for consumers.
Block Stock: Moving Upmarket To Bigger Sellers
With roots in serving such micromerchants as food trucks and farm-stand vendors, Square has moved "upmarket," targeting larger businesses.
SQ stock ranks among the top 10 fintech companies. Bigger fintech companies include Visa(V), Mastercard (MA), PayPal, Fidelity National Information Services (FIS), Fiserv(FISV) and American Express(AXP).
In addition to selling credit-card readers, Square provides software for point-of-sale and back offices in order to manage inventory and other tasks.
Square recently focused on software products that can be used across many industries, such as invoicing, payroll and marketing. It also aims to integrate its payment tools into e-commerce platforms.
Instant Deposit Speeds Up Process
The company's Square Instant Deposit allows merchants to immediately receive payments instead of waiting a few days for settlement.
Meanwhile, Square Card is a business prepaid debit card issued in partnership with Sutton Bank to small business owners on the Square platform.
Square on March 2 said its Utah-based industrial bank has launched services to small businesses. Called Square Financial Services, the bank will offer loans and deposit accounts.
In trying to move upmarket, Square takes on Worldpay and Global Payments(GPN).
Somefintech companies are merging, giving them greater scale vs. Square.
The company recently sold Caviar, a food ordering and delivery service, to DoorDash for $410 million.
One key question as competition heats up is the outlook for the gross payment volume — total volume of sales in dollars generated by merchant customers — also known as GPV. It's a key financial metric for rivals like PayPal as well.
SQ Stock Fundamental Analysis
Square reported December-quarter earnings, net revenue and gross payment volume that topped analyst estimates, as Cash App growth slowed less than feared.
Square Q4 earnings came in at 27 cents per adjusted share, down 15% from 32 cents in the year-earlier period. Analysts had projected earnings of 23 cents a share.
Gross profit increased 47% to $1.18 billion vs. estimates of $1.16 billion, the company said.
Square said net revenue jumped 62% to $4.42 billion, boosted by Cash App transactions for digital cryptocurrency Bitcoin. Analysts had predicted revenue of $4.04 billion.
Adjusted revenue rose 54% to $1.4 billion, topping estimates of $1.34 billion.
Cash App had 44 million active monthly users at the end of December, up from 40 million in June, the company said. Cash App had gross profit of $518 million, up 37% year-over-year, topping estimates by 2%. Gross profit per monthly active grew 13% year-over-year to $47.
Gross payment volume from merchant customers rose 92% to $46.3 billion, in line with estimates.
Square said earnings before interest, taxes, depreciation and amortization, known as EBITDA, came in at $184 million vs. estimates of $143 million.
"Management gave some color around Afterpay, but left many details out in anticipation of their investor day in May," said RBC Capital analyst Daniel Perlman in a report.
At Keybanc Capital Markets, analyst Josh Beck commented: "Afterpay synergies were an earnings call focus, with early achievements including day-one online merchant/BNPL integration and 100,000 Cash App leads to Afterpay merchants with a compelling vision to unite the consumer/seller ecosystems across channels and countries."
Block Stock Technical Analysis
After its disappointing initial public offering in November 2015, Square stock meandered. In June 2016, SQ stock still traded just above its initial public offering price of 9.
That soon changed. Square stock went on a big run starting in 2016. One analyst called Square the next FANG stock, joining the likes of Facebook(FB), Amazon(AMZN),Netflix (NFLX) and Alphabet's (GOOGL) Google in stature.
Following its big run, Square stock fell more than 50% in late 2018 as many technology companies also crashed. Not many stocks roar back after a 50% correction.
It takes time for them to digest gains and set up for another extended surge into new highs.
But SQ stock clawed back in 2019. Then shares surged in 2020 as investors focused on the growth of its consumer Cash App.
But Block stock disappointed in 2021, especially in the back half of the year.
Square has wrestled with finding the right balance of revenue growth, investments and profitability.
So, Square stock likely needs to form a new base to be actionable.
Source: IBD
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