Square Inc (NYSE: SQ) traded higher on Thursday after the company topped third-quarter EPS and revenue estimates and raised its full-year revenue and EPS guidance. The new EPS guidance range for the fourth quarter came up short of consensus analyst estimates.
In addition to reporting earnings, Square recently sold its Caviar food delivery service. The company said its strong third-quarter numbers were due to “underlying trends” in its Seller and Cash App businesses and “bitcoin outperformance.”
Several analysts have weighed in on Square’s quarter since the report. Here’s a sampling of what they’ve had to say.
KeyBanc analyst Josh Beck said accelerating gross payment volume, unit economics and triple-digit growth in Cash App revenue make Square stock a strong investment.
“2020 guidance was provided at low-30s growth and flattish margin expansion, consistent with our initial outlook (though below our most recent prediction on margins),” Beck wrote.
Olivetree strategist Dan Forman said Square’s growth rate continues to decelerate, but the heavy investments it is making now could kick-start revenue growth several quarters down the line.
“Net, if investors come away from this quarter thinking that this maybe the last reset then we think the stock has indeed presented a long-term entry point per our prior comments as the stock pulled back to the $50ish level,” Forman wrote.
JPMorgan analyst Tien-tsin Huang said “stable seller growth” coupled with a scaling Cash App were positives for Square in the third quarter. However, 2020 is “now an investment year.”
2020 Expectations Reset
Bank of America analyst Jason Kupferberg said 2020 is shaping up to be a transition year for Square.
“While Square (SQ) had previously signaled 2020 would be a heavy investment year (especially in the Seller ecosystem), neither the top or bottom line outlook for next year seems terribly exciting,” Kupferberg wrote.
Wedbush analyst Moshe Katri said that despite beating expectations on all third-quarter metrics, heavy investments will cap Square’s 2020 margins.
“We believe an upcoming downward ‘reset’ in Street’s CY2020 expectations on upcoming investments combined with a hefty multiple will likely cap the stock’s performance,” Katri wrote.
Raymond James analyst John Davis said it's difficult to see a positive catalyst for Square stock in the near term.
“While some may view the initial 2020 commentary as a clearing event that sets the company up to beat and raise throughout next year, we believe the sheer magnitude of the shortfall relative to prior consensus will likely weigh on the stock,” Davis wrote.
Ratings And Price Targets
- Bank of America has a Neutral rating and $70 target.
- Wedbush has a Neutral rating and $75 target.
- JPMorgan has an Overweight rating and $75 target.
- Raymond James has a Market Perform rating.
- KeyBanc has an Overweight rating and $75 target.
Square's stock traded around $64.29 per share at time of publication.
Based on the analysts’ commentary, it seems as if earnings upside for Square will be capped over the next several quarters. Instead of focusing on the numbers, bulls and bears will need to determine whether or not sentiment in the stock has bottomed now that 2020 expectations have been reset.
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