Shares in Square (SQ) embarked on a roller-coaster ride on Thursday after the company released its fourth-quarter numbers. The mobile payments giant’s share price was down as much as 6% before rebounding to 2.5% gain. Whereas now it finds itself down 4% to $77.87.
Square’s revenue increased 64% year-over-year to $464 million, higher than both analyst consensus and the company’s own guidance. While the company has quickly grown on the heels of its original credit card reader product, its products and services segment is continues to contribute to a larger share of revenue and the Square Card remains a key opportunity moving forward.
In reaction, Cantor analyst Joseph Foresi maintains his Overweight rating and $91 price target on the stock, suggesting an 18% upside.
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Foresi has a yearly average return of 20.5% and an 88% success rate. Foresi has an average gain of 71.8% when rating SQ and is ranked #3 out of 5,220 analysts.
On Square, Foresi says he’s “attracted to the company’s increasing market penetration, end-user growth and improving margin profile, driven by SG&A leverage and an increasing margin contribution from other services.”
The analyst says that “gross Payment Volumes continued to have outsized growth in the period,” growing 28% in the quarter. Foresi expects “rapid growth to continue and foresee further margin expansion going forward, although our margin expectations have moderated. We expect these factors to drive the stock’s performance as the company continues to build out its ecosystem.”
Square’s ecosystem remains a critical part of its business, and one that has investors and analysts bullish on the future. During its earnings call, Square’s CEO Jack Dorsey said its ecosystem is the company’s “core differentiator,” as companies are able to find a slew of services on the platform, including for loans, payroll and invoices. While the Square reader played an integral part in bringing customers to the service, its ecosystem is making sure they stay.
Its newest product, Square Card, is being viewed as a stronger driver for the future. The card is geared to business customers (unlike its consumer Cash Card), where users receive 2.75% cash back when purchasing from another Square merchant. Square hopes its existing customers will work to pursued non-Square members to join the platform, in order for both parties to begin enjoying savings.
Overall, SQ has drawn optimism mixed with caution when it comes to consensus opinion among sell-side analysts. Out of 21 analysts polled in the last 3 months, 11 are bullish on SQ stock, 8 remain sidelined, while 2 are bearish on the stock. The stock’s consensus target price among these analyst stands at $80.75, suggesting the stock is fairly valued. (Get TipRanks’ free due diligence report)
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