Twitter and Square CEO Jack Dorsey speaks during a press event at CES 2019 on January 9, 2019 in Las Vegas, Nevada.
David Becker | Getty Images News | beautiful images
Square shares rose 13% on Friday after beating Wall Street expectations the previous quarter a day.
The San Francisco-based payments firm reported net sales up 140% to $ 3.03 billion in the third quarter. Adjusted earnings hit 34 cents, more than double what analysts polled by Refinitiv.
The Square Cash app was the main driver behind the strong results and enthusiasm of analysts. The banking and payment app more than tripled its total profit from a year ago and accounts for nearly half of the company’s $ 794 million gross profit.
The app starts out as a peer-to-peer payment option, similar to PayPal’s Venmo. But since then Square has rolled out many of the app-like banking-like products, including crypto and stock trading, that have boosted unit economics and returns more aggressively than Venmo.
The result was a hit among many Wall Street analysts who suggested stocks to clients on Friday. Citi, Cannacord Genuity, Needham, Mizuho and Susquehanna upgraded their price targets on Square after the breakout quarter. In a client note, Citi analyst Peter Christiansen called Square’s growth opportunity “too large to ignore.”
Moffett Nathanson’s Lisa Ellis maintains her “buy” rating on Square but raises her earnings estimate through 2021. Although the stock is bullish this year and “investor expectations are pretty high,” the company remains. “over a mile,” Ellis said in a note to customers.
Guggenheim’s Jeff Cantwell emphasized Square’s potential to mimic China’s Alipay success, writing that “Square should build a Cash App into a super app.” Mizuho’s Dan Dolev pointed to the increase in Cash App’s brokerage feature and said the app suggests it “could be Robinhood, too”, referring to the popular free-trading app.
The Cash App boom compensates for relatively slower growth in Square’s core merchant business that offers direct payments in physical locations, such as cafes. Small businesses that rely on Square’s payment terminals were particularly badly hit during the pandemic. But the seller’s business maintained “its substantial rebound,” said Moffett Nathanson’s Ellis, with gross profit up 12 percent from the previous quarter.
So far, this stock has risen 217% and has risen 28% in just the past week.