Square Inc. is expected to give updates on its continued efforts to make money off its Cash App when the company reports earnings on Thursday afternoon.
What to expect
Earnings: Analysts surveyed by FactSet expect that Square SQ, +2.69% earned an adjusted 17 cents a share in the second quarter, up from 13 cents a year earlier. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate calls for 18 cents.
Revenue: The FactSet consensus calls for $558 million in adjusted revenue, up from $385 million a year earlier. The company’s adjusted revenue number excludes transaction costs and bitcoin costs. Analysts tracked by FactSet are also looking for $26.9 billion in gross payment volume.
Stock movement: Square shares have gained following six of the company’s last 10 earnings reports. The stock is up 48% so far this year, compared with a 20% rise for the S&P 500 SPX, +0.93% . Of the 35 analysts surveyed by FactSet who track the stock, 15 have buy ratings, 17 have hold ratings and three have sell ratings. The average price target is $82.45, near recent levels.
What else to watch for
Deutsche Bank analyst Bryan Keane wrote that while “upside has become more limited in recent quarters,” he sees room for Square to positively surprise its own revenue and adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) forecasts due to products like the Cash Card, instant deposits, Caviar food delivery, and Square Capital small-business loans.
“In addition, the Square Card for merchants could represent a significant opportunity as the company has seen strong uptake similar to the Cash Card,” he wrote. The Cash Card is Square’s associated debit card for its peer-to-peer Cash App, which lets users spend their balances in stores and online, while also receiving discounts on chosen items. The Square Card for businesses lets merchants spend their funds without having to transfer them first to an account.
Keane rates the stock a buy with a $98 target price.
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Susquehanna Financial Group’s James Friedman said that he still expects margin expansion for the full year, “but not at the same trajectory as in the past few years.” Still, he sees “a lot of things to get excited about” for the second quarter, namely his expectation that Square added “new and larger merchants” during the period.
He rates the stock at neutral with a $77 target.
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SunTrust Robinson Humphrey analyst Andrew Jeffrey sees Square in an interesting position of having to decide whether to build or buy new tools. Competing offerings “will pressure Square’s horizontal solutions, in our opinion, challenging it to roll out vertical offerings with attractive three-to-four quarter payback.” He thinks the company should look to buy “cloud-native vertical tech.”
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As for Square’s existing business, he estimates a smaller total addressable market than the company’s $3 trillion figure, and by his count, Square has already penetrated about 10% of its real market opportunity. “This is share at which we anticipate GPV growth moderating, increasing pressure to find new monetization drivers e.g. Square Cash, or penetrate complex retail,” he wrote.
Jeffrey has a $65 price target and hold rating on the stock.
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