RBC Capital’s top analyst Daniel Perlin is out with a research note on shares of Square Inc (NYSE:SQ), after hosting investor meetings with management, which yielded several key highlights including the opportunity associated with the Weebly acquisition and monetization strategy for the Cash App.
Square has recently agreed to buy Weebly, a website-building service, for $365 million in a cash and stock deal. This could help Square accelerate its growth in three key ways, says Perlin:
“1) expands SQ’s footprint to become fully omni-channel for sellers, which both opens up SQ’s funnel to both online sellers as well as helping accelerate growth in its existing base, 2) immediately creates cross-selling opportunities as there appears to be only modest overlap, and 3) enables SQ to more tightly integrate with its sellers, which could continue to drive positive dollar based retention longterm. Although Weebly has ~625K paid subscribers, there are millions of users that are only taking advantage of the free service, which we believe could be converted over time to paid subscribers, with very low customer acquisition costs.”
In addition, the analyst believes that Square’s peer-to-peer payments service Cash App, which now has 7 million active users, represents an untapped potential:
“Two major attributes to monetize SQ’s ~7M Cash App active users today include 1) instant deposit, averaging ~1.5% for consumers who opt for funds to be available immediately and 2) benefits from interchange associated with the pre-paid / virtual card. Surprisingly, the two use cases for the cash card include spending in the physical world at Walmart and McDonalds vs. ecommerce purchases, suggesting the Cash App and its corresponding card could prove to be more meaningful in bringing underbanked consumers into the model. In addition, peer-to-peer transactions represent a very low cost customer acquisition model, which should help drive additional velocity inside SQ’s network.”
Net net, Perlin reiterates an Outperform rating on Square shares.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Daniel Perlin has a yearly average return of 29% and a 88% success rate. Perlin has a 120% average return when recommending SQ, and is ranked #35 out of 4801 analysts.
The word on the Street rings largely bullish on this mobile payments giant, backing Perlin’s confident call, with TipRanks analytics demonstrating SQ as a Buy. Out of 29 analysts polled in the last 3 months, 17 are bullish on Square stock, 10 remain sidelined, and only 2 are bearish on the stock. However, With a downside potential of nearly 7%, the stock’s consensus target price stands at $50.64.