Square (SQ) is making things easier for small businesses.
Last week, the digital-payments company announced the launch of a small-business debit card, which would allow businesses to spend Square balanced without having to wait to transfer to the bank. Essentially, this makes it easier and quicker for Square customers to spend money that they have already earned. While the card itself is free to customers, it may indirectly help boost revenue as Square will continue to entrench itself in the payment processes of its customers.
Guggenheim analyst Jeff Cantwell sees this new product as a good sign for SQ stock. The analyst reiterates a Buy rating and $96 price target, which implies nearly 23% upside from current levels. (To watch Cantwell’s track record, click here)
Looking high-level, Cantwell sees this as Square “increasingly expanding into banking-like services.” The analyst says the company has the “potential to disintermediate traditional banks over the long-term,” which is high praise for a company that started out simply processing payments.
Another positive outcome from the new product is the expectation that the card will generate revenue for the company. While the card is free, Cantwell says he believes “Square’s new business debit card will drive new interchange-related revenue when merchants spend using the card (we estimate around 1%).” In the long term, he says, “the debit card will have a positive ‘substitution effect’ or positive ‘optionality’ for merchants using current products like Instant Deposit – in short, merchants will have the option to either a) spend using the Square business debit card, or b) transfer money back into their existing bank account through Instant Deposit.”
Square’s new business debit card, coupled with everything else it does in payment processing and financial services, keeps the stock classified as a “Best Idea” by Cantwell. The analyst says he continues “to see Square as a unique disruptor with significant future revenue opportunities in merchant services, and increasingly in financial services.” Speaking on merchant services, Cantell says “Square continues to see traction both in e-commerce/omnichannel and with large businesses (see our note on the NRF Big Show here),” while “Square’s debit cards (consumer, and now business), Cash App, and point of sale lending initiatives are what investors should be focusing on “ in the financial services segment.
All in all, Wall Street is quite positive on this ‘Moderate Buy’ giant: Square has received 14 ‘buy,’ 8 ‘hold’ and 2 ‘sell’ ratings in the last three months. Running the numbers across the Street, the 12-month average price target lands at $83.83, representing about 8% upside from current levels. (See SQ’s price targets and analyst ratings on TipRanks)