Square Inc. (SQ), the other company headed by Twitter Inc. (TWTR) Chief Executive Officer Jack Dorsey, received major plaudits from a team of analysts on the Street who see the stock continuing to surge on a variety of growth drivers. Closing down 1.7% Friday at $38.09, SQ reflects a whopping 180% gain year-to-date (YTD) versus the S&P 500’s 18.4% increase over the same period.
Following a meeting with Square's Chief Financial Officer Sarah Friar, analysts at Jefferies point to the fintech company's significant growth opportunities including a new bitcoin service, its commitment to reinvest excess margins into the business, product development in line with a move upmarket and strong progress in its Australian and Canadian businesses. (See also: Square's Market Cap Is Now Bigger Than Twitter's.)
Jefferies analyst Ramsey El-Assal and his team, who rate Square at buy with a $47 price target, outlined four main takeaways from their meeting. The investment firm noted Square’s focus on balancing investing in its business while maintaining mid-single-digit margin expansion guidance for next year. As the company is set to continue returning excess margins back into the business, he expects Square to approach positive GAAP earnings next year.
A Boost From Bitcoin?
After a demonstration of Square’s newly announced expansion of its bitcoin-Square cash product, El-Assal said he was impressed with how easy the service was to use and is “incrementally positive about the potential consumer appeal.” If Square decides to roll out the bitcoin service to all customers, the platform could benefit from a huge uptake, wrote the analyst.
Square's new Retail module -- which contains differentiated capabilities such as a customer data directory and more in-depth inventory management tools -- also works to improve the company’s “seamlessly integrated suite of solutions,” according to the analyst. “We believe merchant demand is high for SQ’s seamlessly integrated suite of solutions and believe the launch of this product along with the continued growth of ancillary subscription and service revenue is important in stabilizing take rate as the company moves up-market, much like we saw in the most recent quarter.”
Lastly, Jefferies likes that Square is moving past hurdles to processing payments in Australia and Canada. “We believe 40%-50% of total applicable payment volume in both Canada and Australia flows over domestic schemes such that SQ should get a nice demand bump when domestic schemes are included in the value proposition." (See also: Square Stock at Risk on ‘Bitcoin Mania’: BTIG.)