Square Inc (SQ) Merchant Survey Leaves This Analyst Pleasantly Surprised; Here’s Why

Nomura's Dan Dolev compares SQ to the likes of tech titan Amazon in its beginnings after key takeaways from an encouraging merchant survey.

Square Inc (NYSE:SQ) investors got a taste of excitement today on back of Nomura analyst Dan Dolev‘s confident call- a bullish forecast hinging on merchants eager to take on Bitcoin as store payments.

For the merchant services platform, Dolev was pleasantly surprised to see that the majority of SQ merchants polled in an expansive Merchant Survey indicate they will take Bitcoin for payment: 60%. With prospects from cryptomania stoking investor intrigue, thanks to Dolev’s bet, shares are now soaring almost 5% in trading today.

The analyst maintains a Buy rating on SQ stock with a $64 price target, which implies a just under 18% upside from current levels. (To watch Dolev’s track record, click here)

Dolev highlights, “The survey also offers a glimpse into SQ’s largest share donors (FDC and GPN/HPY), its robust customer satisfaction, the rapidly expanding use of its cohesive ecosystem, and opportunities to disrupt verticals like the $15bn+ payroll industry. Like Amazon in its early days, we believe that little of SQ’s future revenue streams are currently visible. Our bottom-up DCF points to a $64 target price assuming continued mix shift to large sellers and growing penetration of accretive services like virtual terminal, e-commerce and capital. Success internationally and the scaling of new services (e.g. in banking) would represent incremental upside to our estimates.”

The fact that as many as 60% of Square’s merchants would accept Bitcoin as payment is particularly surprising to the analyst considering “Bitcoin’s elevated volatility.” All the same, the answer bodes well for Square’s future success.

Meanwhile, the survey points to strong customer satisfaction rates, as Dolev notes, “SQ prides itself in its fully integrated ‘Apple-like’ ecosystem. In that sense, it was nice to see that 38% of participating merchants rated SQ ‘Excellent,’ and 58% rated it ‘Good.’ Interestingly, only 4% rated it ‘Average,’ with virtually no merchants referring to SQ as either just ‘Fair’ or worse.”

Considering how well Square can upsell matters significantly in strengthening the company’s retention as well as its margin, the analyst pinpoints one of the survey’s best highlights: 55% of merchants now indicate they use one or more additional services. Notably, this marks a rise considering this time last year, the number was only 48%.

On a final enthusiastic note, Dolev concludes musing that between ADP and PAYX revenue totaling over $15 billion, the ability to disrupt payroll may prove to be a standout “blessing” for the tech player down the line.

TipRanks showcases a largely split Wall Street consensus when it comes to CEO Jack Dorsey’s tech player. Out of 24 polled in the last 3 months, 13 are bullish on Square stock, 10 remain sidelines, while 1 is bearish stock. Pessimism is baked into these analysts’ expectations, considering the 12-month average price target of $47.29 reflects a loss potential of nearly 13% from where the stock is currently trading.

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