When you think of SQ stock, cryptocurrency Bitcoin quickly comes to mind. There's also a big acquisition to mull for Square stock as well as a corporate rebranding.
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Amid rising fears of a U.S. recession, one question is how resistant Square-parentBlock(SQ) will be to a business downturn versus other digital payment companies.
Block stock has retreated about 57% in 2022. SQ stock has under-performed versus the S&P 500, which is down 15.4%.
Square on Jan. 31 closed the acquisition of Australia-based consumer lending startup Afterpay.
Square Stock: Earnings Mixed
Square reportedJune-quarter earningsand revenue that fell from a year earlier but beat estimates. Operating profit and gross payment volume missed views.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, came in above expectations.
"The company has pulled back on experimental and less efficient spend, along with adjusting its risk loss modelling and slowing the pace of hiring," Deutsche Bank analyst Bryan Keane said in a note to clients. "Due to scale and a new cost discipline focus, we believe SQ stock is positioning for material margin expansion in 2023 and 2024."
In its core business, Square stock 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 cryptocurrency, and more.
Cash App user growth and monetization is key to the outlook for SQ stock. Cash App growth soared during the coronavirus pandemic amid government economic stimulus. The bearish view is that Cash App growth will slow as the U.S. economy normalizes.
Block Stock: New Corporate Branding
Square on Dec. 1 changed its name to Block, while retaining the ticker SQ. In part, the move reflected the company's commitment to blockchain technology, which underpins cryptocurrency. SQ stock has dropped 68% since the rebranding to Block.
Meanwhile, the price of Bitcoin stood above $20,680 on Aug. 27, rebounding from a low under $19,000 set in June. Crypto assetshave been under pressure.
The price of Bitcoin has retreated 70% since peaking around $68,900 in November. For investors in Square stock, a key question is when the price of Bitcoin will bottom.
The company retains the Square brand for merchants that use its point-of-sale technology and services.
At an investor day in May, Chief Executive Jack Dorsey said Block has "an ecosystem of ecosystems" business model.
The strategy is designed to create a positive feedback loop among business units as the company expands, he said. But Squaredid not provide multi-year guidanceon revenues and margins.
Square Stock: Cash App Growth Key
"Square delivered a confident, thoughtful and coherent message with a strategic focus," Susquehanna analyst James Friedman said in his note to clients. "SQ is focusing on integrating its Cash App and Square ecosystems (largely via Afterpay), adding services and cross-selling to Cash App customers and growing its adjacent other business lines."
At the investor day, Square said the Cash App now has 46 million monthly active users, up from 44 million at the end of 2021.
Some Cash App metrics were a bright spot when Square reported March-quarter earnings. The company reported earnings, revenue, operating profit and gross payment volume that missed analyst estimates, despite lowered expectations.
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.
Square andTwitter(TWTR) had the same CEO in Dorsey. But Dorsey resigned as Twitter CEO in late 2021, ending the executive-sharing arrangement.
Under Dorsey, Square embraced cryptocurrency Bitcoin. At RBC Capital, analyst Daniel Perlin says Bitcoin is more than a consumer acquisition tool for SQ stock.
Square Stock: Big Bet On Buy Now, Pay Later
In a recent note, 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.
Block in 2021 said it plans to build a system for bitcoin mining. In addition, Square created a new business line to help developers build financial services products focused on Bitcoin.
Announced Aug. 1, the Afterpay 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.Apple(AAPL) has emerged as a rival to Afterpay. Another rival of Afterpay isAffirm Holdings(AFRM).
Some investors questioned whether Block needed to buy a company in this sector 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.
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(SQ)$
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