It’s time to break down a high flying financial technology name. Here is the breakdown on $SQ, otherwise known as Square.
Current Price: $265.93
52/Wk High: $269.67
52/Wk Low: $32.33
Market Cap: $119.9 Billion
Read below for the breakdown!
Square ($SQ) is a major financial technology name that provides sellers with the ability to start and grow businesses in a digital manor. Not only that, but Squares product line also boasts Square Cash, Cash App, and the company has now started to integrate Bitcoin.
Throughout the COVID-19 pandemic, technology names, especially in the financial space have been propelled into the spotlight, which in turn sent Square stock on a massive 232% run throughout the past year.
While Square has run an immense amount, many argue that the stock continues to be a buy, given the substantial growth of Cash App and the company's investments into the bitcoin space.
Digging into the numbers, Square beat Q3 expectations with an EPS of $0.34, much better than the analysts EPS consensus estimate of $0.18. On a year over year basis EPS improved 36%.
Furthermore, revenues increased substantially in the third quarter by a strong 140% to $3.03 billion. For comparison, the Q3 2019 revenues level was $1.27 billion.
Management was also pleased to report strong profit for Q3, with gross profit totaling $794 million, representing a 59% increase on a year over year basis.
Gross payment volume was very strong as well, with GPV (Gross payment volume) totaling $31.7 billion in Q3, representing a solid 12% increase on a year over year basis. It is important to note that out of total GPV, Seller GPV was 91% while Cash App Business GPV was just 9%.
On the subscription front, subscription and service based revenues totaled $448 million (Up 60% year over year) while gross profits for the segment totaled $381 million, representing a strong 76% year over year increase.
The positivity continued, with Square reporting strong seller gross profit as well of $409 million (Up 12% year over year) and a Cash App gross profit of $395 million, representing a 212% increase on a year over year basis.
As for net income, Square reported a solid $37 million in net income and an adjusted EBITDA of $181 million, which represents an EBITDA increase of 38% year over year.
Taking a look at Cash App, daily actives increased as well, with daily transacting customers nearly doubling throughout Q3. Furthermore, stock broker customers saw 28% more transactions on Cash App which resulted in 15% more gross profit.
Rounding out Cash App, the app turned out $2.07 billion in revenues, representing an increase of 574% year over year all the while producing a gross profit of $385 million, representing a 212% increase on a year over year basis.
When it comes to expenses, operating expenses totaled $745 million in Q3, representing an increase in expenses by 53% on a year over year basis, which is to be expected given the huge growth in the business just in Q3 alone.
On the downside, Square did not provide guidance, but the next earnings date for the company is February 23rd and lets just say the expectations are high.
Shifting into the balance sheet the numbers are solid.
Total Debt: $2.232 Billion
Total Liabilities: $6.051 Billion
Total Assets: $8.114 Billion
Cash & Short Term Inv: $2.881 Billion
As for valuation, Square does trade at a premium.
Price to Earnings: 574.36x
Forward Price to Earnings: 231.85x
Price to Sales: 15.50x
Price to Book: 57.31x
Price to Cashflow: 504.06x
Management has done a solid job and has been effective.
Return on Equity: 18.72%
Return on Assets: 5.12%
Return on Invested Capital: 9.33%
Given the numbers the analysts are neutral on Square with a mean price target of $244.20/share, representing a -8.17% downside.
It is also important to note that the high price target is $304.00/share, representing a 14.32% upside, while the low price target is $190.00/share, representing a -28.55% downside.
The big money is quite involved as well with 73.47% of Square being owned by institutions. Top holders include Ark Investment Management, Morgan Stanley Investment Management, and The Vanguard Group.
On a technical basis, Square is bullish. According to the six-month charts the MACD is moving strongly to the upside within a range of 9.77 down to 5.09.
The six-month charts are also indicating an RSI of 71.44 and CCI of 177.75, both of which are on the high end.
In short, Square is a solid company in a growing industry with consistently increasing revenues, profits, and new industries to grow into such as the cryptocurrency space.
EAT - SLEEP - PROFIT
Disclaimer: This is not direct financial advice, simply an opinion based on independent research.