Square, Inc.

SQ Details

76% of Small Business Owners Plan to Give Their Employees Time Off to Vote: Square, Inc. (NYSE: SQ) is an American financial services company that revolutionized payments and made it possible to accept card payments, using a smartphone or tablet. As on 6 October 2020, the market capitalization of the company stood at ~US$77.76 billion. Square and Wakefield Research conducted a survey, wherein it reported that over 76% of small business owners will give employees time off to vote in the presidential election, out of which 86% are likely to be a paid off. It also announced that it is planning to invest US$100 million to support minority and underserved communities, driven by the company’s purpose of economic empowerment and its ongoing commitment to racial equity.

Strong Growth at Scale: In the second quarter of 2020, the company reported a growth of 64% in revenue to US$1.92 billion and achieved gross profit of US$597 million, up 28% year over year. In the same time span, cash App had more than 30 million monthly transacting active customers, with over 7 million spending on Cash Card. However, the company reported a decline in gross payment volume to US$22.8 billion. Adjusted EBITDA also declined to US$98 million, compared to $105 million in the second quarter of 2019. The decrease was primarily driven by a slowdown in Seller revenue. In the same time span, the company incurred a net loss of US$11 million. SQ ended the second quarter of 2020 with liquidity of US$3.7 billion, with US$3.2 billion in cash.

Quarterly Financial Metrics (Source: Company Reports)

Outlook: The company is addressing the evolving needs of customers and seems well-positioned to adapt to the current environment. Despite the impact of COVID-19, cash card spend was resilient during the first half of 2020. For the third quarter of 2020, the company is expecting an increase of at least US$100 million in non-GAAP product development, sales and marketing, and general and administrative expenses.

Stock Recommendation: The stock of SQ gave a return of 59.56% in the past three months and a return of 23.59% in the last one month. The stock is trading close to its 52-week high of US$181.89 but retains potential for further growth. On the technical analysis front, the stock of SQ has a support level of ~US$159.71 and a resistance level of ~US$182.46. On a TTM basis, the stock of SQ is trading at an EV/Sales multiple of 12.7x, lower than the industry average (Industrials) of 95x, and thus seems undervalued. Considering the current trading levels, decent returns in the past three months, decent financial performance and modest outlook, we recommend a ‘Hold’ rating on the stock at the closing price of US$175.34, down by 3.08% on 06 October 2020.

SQ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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