Square (SQ): Here’s What to Expect from a Weebly Takeover; Nomura Shares Two Cents

Nomura's Dan Dolev takes Square's just-revealed M&A buzz in bullish favor, spotlighting encouraging revenue potential ahead.


On back of the reveal that Square Inc (NYSE:SQ) will be taking over website-building company Weebly to the tune of $365 million, the cash-and-stock deal has Nomura analyst Dan Dolev optimistic on the payment company’s prospects ahead. Specifically, Dolev cheers that this is a key move to transition to an Omnichannel commerce provider; the kind of play that could help Square “reach escape velocity.”

Bulls can take this in stride against naysayers dismissing Square’s need to lean too much on brick and mortar companies as its consumers. Wall Street is positive on the news, with shares on a roughly 3% upturn this morning.

In reaction, the analyst maintains a Buy rating on SQ stock with a $65 price target, which implies a 35% upside from current levels. (To watch Dolev’s track record, click here)

Dolev notes, “Overreliance on brick and mortar customers has been a common (and fair) criticism of SQ, as adversaries argue that Square could be ‘on the wrong side of change,’ especially when compared with more e-commerce-driven competitors like Shopify. As such, we view the acquisition of Weebly as a major step forward to becoming a fully integrated Omnichannel commerce provider. We expect Weebly’s likely strong revenue growth and complimentary services to be well received by investors and drive a positive stock reaction.”

By the analyst’s calculation, Weebly’s roughly $60 to $80 million in sales could realize an additional around 5% bump in Square’s revenue, and potentially be accretive to a growth rate Dolev cheers as “already stellar.” After all, Weebly is a company boasting 625,000 paying subscribers. When looking at Wix to GoDaddy as comps, the analyst conservatively forecasts a suggested $60 to $80 million in revenue. In fact, the analyst sees this estimate of total revenue as “still conservative” when looking at Weebly’s “likely most popular plan, dubbed ‘Pro Plan’ at $12 / month or ARPU $144 / year.”

On a final bullish note, “In 2017, WIX’s collections revenue grew +41% and GAAP revenue grew +47%. However, since we estimate that WIX is nearly ~5x larger than Weebly, it is not unthinkable that Weebly may be growing in-line or faster. Either way, such growth rates could be accretive to SQ’s 2018’s expected rev. growth of 32-35% growth,” concludes the analyst, noting that international expansion could take wing considering roughly 40% of Weebly’s customer base stands abroad.

TipRanks indicates SQ has optimism circling on Wall Street. Out of 27 analysts polled in the last 3 months, 16 are bullish on SQ stock, 9 remain sidelined, while 2 are bearish on the stock. With a return potential of nearly 8%, the stock’s consensus target price stands at $50.28.  

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