In recent months, Square Inc. shares have often traded in conjunction with a factor that’s expected to have “minimal” impact on the company’s earnings due out Tuesday afternoon.
Since confirming in November that it was allowing some users of its peer-to-peer Square Cash platform to buy and sell bitcoin, Square SQ, +3.77% has become somewhat of a play on cryptocurrencies, with its shares at times swinging wildly based on the day’s attitudes toward crypto.
“For almost three months, the Square narrative has been conflated with the bitcoin narrative despite the latter’s likely minimal real impact on the former,” wrote BTIG analyst Mark Palmer last week. He’s one of only two analysts with a sell rating on the stock, and he has a $30 price target.
Nonetheless, there are still plenty of questions about Square’s bitcoin efforts, and analysts will likely use Square’s conference call to seek clarity on the matter. Tuesday’s earnings report marks the first since Square announced bitcoin capabilities on the platform, and questions could include on whether letting users invest in a volatile cryptocurrency poses financial risk to Square, as well as how the company has sought to make money off of the practice.
More broadly, the Square Cash platform, where the bitcoin-buying takes place, remains an interesting aspect of the company’s business. Square Cash draws comparisons to PayPal Holdings Inc.’s PYPL, -0.43% Venmo as well as Zelle, a competing platform recently rolled out by the big banks.
KeyBanc Capital Markets analyst Josh Beck told MarketWatch last week that the bitcoin option has helped generate interest in the Square Cash platform, which is important given the competitive landscape for peer-to-peer products. “Square Cash doesn’t have the press or buzz of Venmo or Zelle, but it’s monetizing more of its transactions, at least on a percentage basis,” he said. Beck, who rates Square a buy with a $52 target, estimates that Square Cash monetizes about a third of its transactions.
Though the company has highlighted solid growth for Square Cash recently, the financials for the current quarter are likely to be determined more by core businesses, including payment processing and business services for sellers.
What to expect:
Earnings: Analysts tracked by FactSet estimate that Square earned 7 cents per share on an adjusted basis, whereas it reported a 4-cent net loss a year earlier. According to Estimize, which crowdsources estimates from hedge funds, academics and others, the average projection calls for 8 cents.
Revenue: Analysts tracked by FactSet estimate that Square generated $601 million in revenue during the quarter, while the Estimize consensus calls for revenue of $608 million. Square reported revenue of $452 million in the prior December quarter.
Stock movement: Square shares have risen after four of the company’s eight earnings reports since it went public. Shares have soared 167% over the past 12 months, compared to a 17% gain for the S&P 500 SPX, +1.18% , and they’re up more than 400% from the company’s IPO price of $9. Of the 35 analysts who cover the company, 17 have buy ratings, 16 have hold ratings, and two have sell ratings. The average price target is $42.28, 8.8% below current levels.
What else to watch for:
Helping fuel Square’s rapid growth lately has been the company’s ability to attract larger sellers to its service. Payment volume from sellers who do more than $500,000 in annual business grew 64% year-over-year in the third quarter, accelerating versus the prior quarter. It will be worth watching whether Square can continue that trend. Late last year the company launched the Square Register, an all-in-one point-of-sale system aimed at larger sellers, and Square will likely comment on how demand for it has played out.
Square sells add-on services to businesses that use it for payment processing, and these have also been key to driving growth. The company has seen momentum with its Square Capital lending business and is trying to get a bank charter so that it can be more involved in the process of issuing loans to customers. Other services, such as instant deposits and payroll, have also caught on nicely. The subscription and services business expanded by 84% in the third quarter and investors will be looking for whether Square can keep up that fast growth rate.
KeyBanc’s Beck highlights the company’s international efforts as an area of focus as well. Square’s expansion into Canada, Japan, Australia and the U.K. is still “in the early stages,” he told MarketWatch. “In the U.K. they haven’t really put their foot on the gas from a marketing perspective, but over time that could be really material.” Beck will be watching for comments from the company regarding an uptake in Square’s international services.
Also of note will be any remarks on the competitive landscape, and what that’s meant for pricing, new-customer acquisition and attrition. BTIG’s Palmer said that First Data Corp. FDC, -0.69% CEO Frank Bisignano told a group of analysts following the company’s latest earnings release that FDC is “maniacally focused on beating” Square.
Finally, it’s been speculated by Stifel analyst Scott Devitt that Chief Executive Jack Dorsey may scale back his role at Square given a leadership deficit at Twitter Inc. TWTR, -1.53% , his other company. Look out for comments on this matter. Devitt rates Square a hold with a $37 target.