Square Snaps Up Stitch Labs, As Analyst Finally Upgrades Stock

Mobile payment processor Square (SQ) has acquired Stitch Labs, an operations management platform for growing commerce brands. Terms of the deal were not disclosed.

Stitch Labs has a strong background in building key tools for businesses such as inventory and order management, channel management, and fulfillment solutions, says Square.

“The team will join our Seller organization, where we’re eager to learn from their experience and expertise to help us better serve sellers” the statement revealed.

While Stitch Labs won’t take on any new customers, Stitch Lab’s products will continue to operate for existing customers until Spring 2021.

“Longer term, we plan to sunset Stitch Labs’s products so the team can focus on building out Square tools, and we’ll work with existing customers to ensure that they have the resources and options they need to be successful transitioning off the platform” the company stated.

Shares in Square have now doubled year-to-date, leaving the stock with a cautiously optimistic Moderate Buy consensus. Meanwhile the average analyst price target of $95 now indicates 26% downside potential from current levels. (See SQ stock analysis on TipRanks).

However, Rosenblatt Securities analyst Kenneth Hill has now upgraded SQ from Hold to Buy, writing “SQ has been one of the most divisive names in our coverage over the first half of 2020, and we’ve been content, until now, to sit on the sidelines as expectations vacillated.”

So why the enthusiasm now, at these levels? According to the analyst, there is more to the long-term story than he initially anticipated. “We were forced to re-evaluate the opportunity set and our valuation methodology, leading us to a Buy recommendation as we see Cash App revenue (ex. bitcoin) increasing by more than 3x over the next 5 years” the analyst explained.

While shareholders may still experience some bumps, he believes that as Square develops, rolls out, and monetizes a slew of services across the payments and financials ecosystems, it will lay the groundwork to make the company a need-to-own name for years to come. Hill has a $121 price target on Square.

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