In 2017, Square (SQ) debuted its pre-paid debit card for its mobile payment app, Cash, so people could use the money in their accounts out in the real world. Now it’s doing the same thing for business owners with a new product — the Square Card — a free business debit Mastercard for Square merchants which gives its users access to funds as soon as they make a sale through their Square Card reader.
Nomura analyst Dan Dolev believes the launch of Square Card kills several birds with one stone: (1) It taps the multi-trillion underpenetrated B2B commerce market, of which just 4% is carded. (2) It gets SQ paid multiple times on existing GPV dollars. (3) It reinforces the ecosystem by incentivizing sellers to transact with one another. (4) It deepens SQ’s disintermediation of banks, a concern that FISV’s CEO expressed just last week.
On the back of the new product launch, Dolev reiterates a Buy rating on Square shares, while slightly lifting the price target to $110 (from $108), which implies an upside of 50% from current levels. (To watch Dolev’s price target, click here)
Dolev commented, “With volumes of $120 trillion, the global B2B commerce market is 2-3 times larger than consumer. In North America alone, B2B commerce is estimated at $25 trillion, of which just $1 trillion or 4% is carded. We estimate that SQ’s SMB focus could imply a $50bn long-term TAM in North America […] We conservatively estimate that SQ could initially capture $4bn of its seller’s GPV. This is the estimated carded portion of the total annual spend on materials and supplies for its 150-200K largest sellers. We believe that converting just 5-15% of carded GPV to the Square Card can drive $2-7mn of incremental sales, after deducting network fees and lost revenue from a 2.75% discount for sellers transacting with one another. Although we believe the near-term revenue opportunity from Square Card is modest, the rise in B2B card penetration, and the fortification of the ecosystem from driving seller engagement, are significant long-term positives.”
In reaction to the bullish comments, SQ shares have been sent racing almost 6% in Thursday’s trading session.
The Street largely seems to echo Dolev’s positive sentiment, considering TipRanks analytics showcase SQ as a Buy. Out of 24 analysts polled in the last 3 months, 14 are bullish on Square stock, 8 remain sidelined, while 2 are bearish on the stock. With a potential upside of nearly 21%, the stock’s consensus target price stands at $83.83. (See SQ’s price targets and analyst ratings on TipRanks)