It’s time to revisit a fintech king. Here is the break down on $SQ, otherwise known as Square.
Current Price: $200.11
52/Wk High: $283.19
52/Wk Low: $76.02
Market Cap: $91.1 Billion
Read below for the breakdown!
Square ($SQ) is a major financial technology company that offers customers an “ecommerce ecosystem” in-that enables users to create and grow businesses. Furthermore the company offers Square Cash, Cash App, and cryptocurrency features.
In recent news, Square announced a $2.0 billion offering of senior notes, in turn creating downside acceleration in the stock.
According to management, the funds will be used for “general corporate purchases” and possible acquisitions, transactions, capital expenditures, or basic investment capital.
On a final news note, Square also announced that the company will no longer be purchasing Bitcoin. According to management this comes after a $20 million loss from their original $220 million investment in the previous quarter.
Shifting into management, Square is led by CEO Jack Dorsey, the co-founder and CEO of Twitter. Dorsey is a major technology icon, who has worked within the industry since founding Twitter in 2006.
On the acquisition front, Square announced the acquisition of Tidal, a global music and entertainment platform that connects fans and artists. The deal is $297 million in total and is a combination of cash and stock.
Leadership noted that the acquisition targets the company’s purpose of “economic empowerment” and believes the industry will grow to become a significant part of the economy.
Digging into the numbers, Square beat Q1 2021 expectations with an EPS of $0.41, better than the analyst’s EPS consensus estimate of $0.16. On a year-over-year basis, EPS improved by 2,150%.
On the revenues front, net revenue increased by 266% year-over-year, bringing total revenues to a strong $5.06 billion. Although it is important to note that excluding Bitcoin, net revenues totaled $1.55 billion, representing 44% growth year-over-year.
Expanding on revenues, subscription and services-based revenues increased by 88% year-over-year to $558 million.
Exploring the profit front, gross profit totaled $964 million for the quarter, representing a strong 79% increase in gross profit on a year-over-year basis. For reference, the Q1 2020 gross profit level was $539 million.
Breaking down profits, Square’s Sell ecosystem produced $468 million in gross profit (Up 32% YoY) while the company’s Cash App service generated $495 million in gross profit, representing a year-over-year jump in the segment's gross profit of 171% year-over-year.
Flipping into income, net income totaled $39 million for Q1 2021, a significant improvement over the Q1 2020 net income level of $-106 million. It is important to note though that if not for investment expenses in DoorDash and Bitcoin, net income would have totaled $88 million.
Adjusted EBITDA improved significantly as well, jumping from a lower $9 million in Q1 2020 to a strong $236 million. Adjusted EBITDA was driven by Square’s Seller and Cash App ecosystems.
Management was upbeat about the quarter and positive on the future, expecting significant growth in the year ahead, boosted by the reopening of the US.
Shifting into the balance sheet the numbers are solid.
Total Debt: $3.749 Billion
Total Liabilities: $9.034 Billion
Total Assets: $11.349 Billion
Cash & Short Term Inv: $3.667 Billion
On a valuation basis, Square does trade at a premium.
Price to Earnings: 328.59x
Forward Price to Earnings: 95.75x
Price to Sales: 6.56x
Price to Book: 39.31x
Price to Cash Flow: 338.15x
Management has been effective.
Return on Equity: 17.37%
Return on Assets: 4.13%
Return on Invested Capital: 7.32%
Given the numbers the analyst’s are bullish with a mean price target of $283.56/share, representing a 41.70% upside.
The high price target is $380.00/share, representing an 89.90% gain while the low price target is $160.00/share, representing -20.04% downside.
The big money is quite involved with 70.25% of Square being owned by institutions. Top holders include The Vanguard Group, Morgan Stanley Investment Management, and Fidelity Management & Research.
On a technical basis, Square could be presenting opportunity. According to the six-month charts the MACD continues to move to the downside with significant momentum within a range of -7.66 down to -11.38.
The six-month charts are also indicating an RSI of 33.87 and CCI of -120.887, both of which are on the low end.
It is important to note that the $200 price point has been a continual point of support and that a breakdown on that support and fall through the 200 day SMA and EMA could imply much further downside.
While largely the positives outweigh the negatives, the recent $2.0 billion offering, Tidal acquisition, and Bitcoin losses are creating investor unease and could pose some risks in the future.
In short, Square ($SQ) is a leader in the fintech space that boasts expanding revenues and profits, a growing customer base, reliable management team, and a significant product line.
EAT - SLEEP - PROFIT
Disclaimer: This is not direct financial advice, simply an opinion based on independent research.