Last Minute Thought: Buy or Sell Square (SQ) Stock Before Q1’19 Earnings?

Financial technology company Square (SQ) is slated to announce first-quarter results in just a few minutes. With seven consecutive quarters of accelerating year-over-year revenue growth rates behind it, investor expectations are high. Will Square stock be able to live up to the Street’s expectations for more robust growth? J.P. Morgan analyst Tien Tsin Huang says yes.

Huang believes Square stock has room to run, as he reiterates an Overweight rating with $88 price target on the stock, which implies nearly 20% upside from current levels. (To watch Huang’s  track record, click here)

Ahead of the release, Huang says he sees revenue “up 56% y/y to $477M (Street/Guidance at $479M/$472M – $482M), on 28% GPV growth (stable sequentially)…[and] adjusted EBITDA of $51M (vs. guidance of $47M – $51M), and EPS of $0.06 (vs. guidance $0.06 – $0.08).” His estimates are generally near booth Street and guidance.

Despite his positive stance, Huang is lowering EBITDA estimates for 2019/2020. The analyst says, “with lots of energy and competition for on-demand banking services like Cash App, we expect investments to drive habitual usage (e.g. Boost) to stay elevated, pushing our near-term [operating expenses] up.” Furthermore, Huang’s Q2 EBITDA estimate is lower than the Wall Street consensus. So while the analyst expects the stock to perform well over the next year, he does estimate Square’s performance will weaken compared to his previous estimates. 

Adding his two cents to the earnings discussion is Nomura analyst Dan Dolev: “Decelerating large merchant GPV growth in 4Q was a major concern. For 1Q, we expect a slight improvement – largely helped by easing compares – to help improve sentiment. Total yield potentially creeping up to 2% could provide affirmation that the scope of SQ’s ecosystem continues to expand. Our adj. revenue & EBITDA build shows the odds for a solid beat vs. the high-end of the guide are favorable.”

Last quarter, CEO Jack Dorsey during the company’s earnings call said Square’s ecosystem is the company’s “core differentiator.” The ecosystem continues to grow and help businesses with a wide-range of services, ranging from loans to payroll to invoices. Square’s original product (the card reader) was key for bringing attracting customers, but the company expects the ecosystem to be a source of new and growing revenue, as more value-add services are offered.

What do other analysts say about Square stock? TipRanks analysis of 16 analyst ratings shows a consensus Moderate Buy. Of the 16 analysts, nine rate Buy and seven say Hold. There is an average price target of $87.88, representing nearly 20% upside to its current value. 


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