2021 is proving a bit of a rollercoaster ride for Square (SQ). The stock was hot property in 2020, pushed ahead by strong Covid-19 driven tailwinds and benefitting immensely from the pivot toward digital payments.
While the stock’s ups and downs in this year’s choppy stock market has resulted in a flat year-to-date performance, Square’s value lies in being part of a secular trend which is only set to became more prevalent as the decade progresses.
Assessing the road ahead, Deutsche Bank’s Bryan Keane thinks the Street is underestimating Square’s future growth potential.
“If the economic recovery continues,” said the 5-star analyst, “Our updated upside model sees gross profit growth potentially accelerating to as high as ~89% Y/Y in 2Q21 and ~73% Y/Y growth in FY21, which would be ~19% pts above Street estimates (with growth rates well above peers).”
As with anything with the words Square and growth attached, the Cash App invariably gets a mention.
The peer-to-peer app’s gross profit growth “remains strong,” and boosted by “continued strength in business accounts and accelerating growth in Cash Card,” increased by 171% year-over-year in 1Q21.
Keane expects continued growth for the app, although following last year’s exceptional performance, through the remainder of FY21, Cash’s ecosystem will face “continued difficult comps.”
It’s a different story, however, for the Seller segment, as volumes suffered during lockdown, and in contrast to the Cash App, Seller should “positively benefit from easier comps” in the months ahead.
Seller GPV (gross payment volume) climbed by 144% year-over-year in April and Keane expects that strong performance to continue. Driven by “better volumes from accelerated net adds and eComm/omni-channel expansion as well as demand for core flex loans ramping back up over time,” in FY21, the analyst sees potential upside for Seller gross profit growth of ~51% from the same period last year, while FY22 should see a ~32% year-over-year uptick. These are respectively ~7ppts and ~4ppts above Keane’s “core model.”
“The company will continue its focus on expanding the Seller market to drive incremental business into the platform and plans on expanding Seller marketing spend by +45% Y/Y while doubling the size of the sales team in 2021,” the analyst further noted.
So, excellent news for Square, but what does it all mean for investors?
Keane rates SQ shares a Buy along with a $330 price target. Investors could be sitting on gains of 45%, should Keane’s forecast play out accordingly. (To watch Keane’s track record, click here)
The Street’s average price target is more modest but still suggests decent upside. At $286.87, the figure is set to provide 12-month gains of 31%. Overall, the stock’s Moderate Buy consensus rating is based on 17 Buys vs. 5 Holds and 1 Sell. (See Square stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
