Square Inc (NYSE:SQ) dealt a strong hand for its fourth quarter, with CEO Jack Dorsey’s company outclassing Street-wide expectations.
Stifel analyst Scott Devitt not only sees a “very” robust quarter “by most measures,” but likewise cheers various drivers in SQ’s back pocket primed to dial up sustained growth throughout the platform.
In fact, valuation is the one factor of the equation keeping Devitt on the sidelines, as he spotlights that SQ “shares reflect strong momentum.”
On back of the standout print, the analyst reiterates a Hold rating on SQ stock while hiking the price target from $37 to $46, which implies a slight 1% downside from current levels. (To watch Devitt’s track record, click here)
For the fourth quarter, SQ’s adjusted revenue shot up to 47% growth, which Devitt finds is underscored by 96% growth in subscription and services-based revenue, hitting $984 million for 2017. Adjusted EBITDA rose 38% year-over-year, which is a strength of the print; but the margin slipped slightly from the year before, which the analyst attributes to investments in personnel and marketing. The SQ team set the 2018 adjusted revenue growth guide to 34% and adjusted EBITDA margin to 19% at each of the midpoints. Whereas the revenue guide beat out expectations, margin met Street-wide forecasts. “Square continues to move up market with larger sellers and omni-channel, international business, and the Cash App are still in the early stages,” notes Devitt.
GPV growth surged 31% year-over-year to $17.9 billion for the quarter, aligning with the analyst’s projection and surpassing the Street’s $17.7 billion, jumping to $65 billion for 2017. Adjusted revenue growth rocked for the third quarter in a row to 47% year-over-year up to $283 million, topping the analyst’s $269 million forecast- and far ahead of the tail-end of the guide calling for $262 to $265 million. SQ’s Cash App magnetized over 7 million monthly active users in the month of December, with customers shelling out more than $90 million with the Cash Card in the month. A rise in usage by Square sellers coupled with individuals utilizing the Square Cash app have both been key advantages for Instant Deposit.
For the quarter, SQ Capital handled more than 47,000 business loans totaling a 23% year-over-year boost to $305 million. The company posted $41 million in adjusted EBITDA and a 15% margin, trouncing the Street’s $38 million estimate along with the guide angling for $34 to $37 million.
Looking ahead, “The company will be investing in personnel and leaning in on sales and marketing to support strategic priorities. We are comfortable where investment is focused and like the tradeoff as there remains multiple levers to sustain growth. Square continues to resonate with larger sellers as GPV grew 44% y/y among sellers with over $125K in annualized GPV […] Square continues to expand the Cash App platform with new features and services. Looking towards FY:18 and beyond, the company is investing in key areas including omni-channel, financial services and international markets – all have substantial runway ahead, in our view. Square continues to hit on all cylinders,” Devitt contends.
TipRanks suggests that Wall Street is torn between playing it safe on the tech stock and those willing to take the gamble on Dorsey’s company. Based on 22 analysts polled in the last 3 months, 12 rate a Buy on SQ stock, 9 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target of $46.36 aligns with where the stock is currently trading.