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What can investors expect from Square’s Q1 earnings?

Square’s [SQ] share price has had a volatile three months. Having hit an intraday high of $280.94 on 19 February, less than a month later the stock had plummeted to trade at circa $201 on 8 March.

It then climbed to $251 on 15 March and fell to $202 on 29 March, before maintaining a sustained — relatively speaking — recovery to $275.45 on 13 April. On 30 April, Square’s share price closed at $244.82, had a beta ratio of 2.43 and Cathie Wood’s Ark Invest had just sold thousands of its shares.

So, while Square’s share price might be up 246.66% over the past 12 months, that doesn’t tell the whole story of what has been a wild ride for the online payments company. That adds importance to Square’s upcoming earnings. A decent showing could inject some resilience into Square’s share price but, if Wall Street expectations are missed, traders can expect some more volatility. 


Square's share price rise over the past 12 months


When is Square reporting earnings?

6 May


What could move Square’s share price post-earnings?

Early March saw Square’s share price surge after an announcement that it was going to create its own bank. Square Financial Services would offer deposit accounts and loans to the small businesses that use Square to manage transactions. The move sees Square attempt to become a one-stop shop for financial services. While limited to merchants in the initial stages, Square has previous form for launching new products that quickly take off, such as its Cash App that now accounts for almost half of revenue.

In the fourth quarter of 2020, Square’s gross profit came in at $804m, a 52% jump from the same period the year before. Cash App pulled in $377m of that profit, up 162% year-on-year, with 36 million active users on the app in December, up 50% year-on-year. Square’s Seller ecosystem of products delivered $427m of gross profit in the quarter, up 13% year-on-year.

For the full year 2020, gross profit came in at $2.73bn, up 45% on the previous year.


Square's gross profit - a 45% YoY rise


The success of Cash App fits into Square’s strategy of building an ecosystem of products. In its investor letter, the company noted that “new customers adopt products like Cash Card and bitcoin within their first month at a higher rate.” In 2020, more than 3 million customers purchased bitcoin using Cash App, helping Square hit a gross profit per transacting user of $41, up 70% year-on-year. 

After such red-hot growth, investors will be keen to see if Square can maintain the pace. Square has said Cash App delivered a gross profit growth of 164% year-on-year in January, possibly pointing to another strong quarter for the product. Seller gross profit was also up 15% for the month. The recent wider surge in interest in bitcoin could have resulted in more transactions on Cash App.


What is Wall Street expecting?

Wall Street is expecting earnings of $0.16 a share, up from the $0.02 loss per share seen in the same period last year. Revenue is pegged at $3.33bn. If Square manages to hit that target it would be a huge 141% jump on the $1.38bn seen last year.

Will Square beat expectations? The company has beaten Wall Street expectations for the past three quarters and, in fourth-quarter results, the company delivered earnings of $0.32 a share, easily topping the expected $0.24.


Square's forecasted revenue - a 141% YoY rise


In March, Square’s share price got a boost when KBW analyst Steven Kwok upgraded his outlook on the stock from market perform to outperform. Kwok put a $250 price target on Square, which would see an 8.14% upside on the current price (as of 4 May’s close). The analyst cited Square's Seller and Cash apps, along with the company taking a majority stake in Jay-Z’s music-streaming service Tidal, as reasons to be bullish on the stock.

“While we might not be catching the bottom of the growth to value trade, ... Square is a long-term winner within the underserved market,” Kwok wrote in a commentary, according to The Street.

Analysts are generally bullish on Square. In April, Square got a string of price upgrades with Needham bumping their target from $300 to $310, Keycorp from $250 to $275, Credit Suisse $270 to $290 and Barclays moving their price target from $330 to $340, all of which would see healthy upsides if hit.

“While we might not be catching the bottom of the growth to value trade, ... Square is a long-term winner within the underserved market” - KBW analyst Steven Kwok


However, Cathie Wood’s Ark Investments offloaded circa 280,000 shares in Square on 28 April, cutting positions in the Ark Innovation ETF [ARKK] and Ark Next Generation Internet ETF [ARKW].

Among the analysts tracking the stock, Square’s share price has an average $271.26 price target. Hitting this would represent a 17.33% upside on the current price. Of the 31 analysts offering recommendations on Yahoo Finance, seven rate Square a strong buy, while 13 rate it a buy.

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