Square
- Market value: $96.1 billion
- Analysts’ average long-term (LT) earnings growth rate: 35.7%
- Analysts’ ratings: 22 Strong Buy, 7 Buy, 10 Hold, 1 Sell, 2 Strong Sell
Square (SQ, $208.33) is one of the first names that comes to mind when thinking of mobile payments stocks. The company’s third-quarter net loss of $3 million may have disappointed investors; however, its heightened investment in its digital Cash App payment platform during the period could generate millions more users.
The San Francisco-based fintech stock – which processes card payments of more than $100 billion annually – is unveiling new products and enhanced services to attract merchants and add to its 70-plus-million annual transacting active Cash App customers. Square’s mobile payment service, Cash App, allows users to transfer money to one another using their mobile devices.
For the three months ended Sept. 30, Square reported $3.8 billion in revenue, up 26.7% from the same quarter a year ago, and gross payment volume (GPV) of $45.4 billion, a 43% year-over-year increase. This was led by jumps of 48% and 33%, respectively, in gross profit for its Seller and Cash App ecosystems. Square reported the $3 million net loss on an unadjusted basis, down from a profit of $37 million in the same quarter a year ago, as it invested more heavily in product development.
“SQ is a leading payments player that is capitalizing on the secular trends driving growth in consumer and business payments,” says Needham analyst Mayank Tandon (Buy).
“We expect the Seller and Cash App ecosystems to help Square generate outsized revenue, gross profit and EBITDA [earnings before interest, taxes, depreciation and amortization] growth over the coming years. We recommend the name for aggressive growth portfolios looking for exposure to the secular trends driving digital payments,” he adds.
During the third quarter, the company launched Cash App Pay – a mobile-friendly payment app that lets customers pay Square vendors straight from their phones.
Additionally, Square began offering its peer-to-peer payment app – a rival of PayPal’s (PYPL) Venmo – to a new demographic: Teenagers (ages 13 to 17), with their parents’ permission. This tool has the potential to target 20 million new users in the U.S., according to Square.
“By expanding Cash App to families, we are able to provide teens with a seamless way to spend, send and save the money they receive,” management wrote in a letter to shareholders. “We believe the combination will more deeply connect our Seller and Cash App ecosystems, accelerate our strategic priorities and allow us to deliver even more compelling products and services for consumers and merchants.”
Square is also testing a Cash App feature that allows users to borrow as much as $200. In addition, Cash App launched mobile check and paper money deposits that allow customers to scan checks and add physical cash to their Cash App balance at more than 30,000 participating retailers across the U.S. including Walgreens (WBA) and Family Dollar.
