Can Square’s share price keep cashing in after Q3 earnings?

Digital payments company Square [SQ] is forecast to clock 45.9% revenue growth on year and 11.8% earnings growth when it reports its third-quarter earnings on 4 November.

 The group has been buoyed by the rocketing demand for ecommerce and digital payments during the COVID-19 crisis.

 “Square’s business-focused fintech is catching on with larger sellers amid the continued ecommerce revolution as businesses, entrepreneurs, artists, and everyone in between turn to the likes of Square to succeed,” wrote analysis firm Zacks.

Over the last 12 months, the Square share price has climbed 48.58% to reach $254.50 at close on 29 October, with rivals PayPal [PYPL] up 19.71% and Shopify [SHOP] up 40.36% to the same date.

Afterpay acquisition

The share price was boosted by Square’s decision to acquire Australian buy-now pay-later (BNPL) group Afterpay for $29bn in August.

Square said it plans to integrate Afterpay, when the deal completes early next year, into its existing Seller and Cash App business units, enabling even the smallest of merchants to offer BNPL at checkout.

“Square and Afterpay have a shared purpose,” said Jack Dorsey, co-founder and CEO of Square (pictured above). “Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.”

Square has had its wobbles with a large second quarter $45bn impairments cost on its bitcoin investments but it still saw a “significant growth in bitcoin revenue year over year”.

“Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.” - Co-Founder and CEO Jack Dorsey after Square acquired BNPL group Afterpay

Look for EPS growth

Analysts at Zacks expects Square to post quarterly earnings of $0.38 per share on revenues of $4.42bn.

 “Wall Street loves its ability to attract more consumers to its P2P platform the Cash App, as it competes against PayPal and JPMorgan Chase,” Zacks wrote in a report, adding that the app had 40mn monthly transacting active customers in June and highlighting the cash app’s flexibility to  buy and sell bitcoin, stocks and ETFs alike.

According to Market Screener, analysts have a consensus ‘outperform’ rating and a $296.72 target price.

Flagging revenues in Q2

In the second quarter, Square reported earnings of $0.66 per share, beating the Zacks forecast by a whopping 106.3%,and up 266.7% year over year. Revenues of $4.68bn were up 143% from the same quarter last year. However, they fell by 7.4% from the previous quarter and fell short of estimates of $5.02bn.

Its Cash App, helped by bitcoin trading, saw revenues rise 177% to $3.33bn. The Seller ecosystem recorded an 81% rise in revenues to $1.31bn.

There were concerns around a Cash App slowdown. "Cash App's year-over-year revenue growth decelerated from the prior quarter's 139%, reflecting tough comparisons, with likely further deceleration during the next few quarters," Wedbush analyst Moshe Katri said.

Cash App “skittishness”

Analysts will be keen to hear Square management’s outlook on synergies from the Afterpay deal, growth hopes, consumer demand, and bitcoin volatility. The main focus, though, is likely to be around Cash App concerns and COVID-19.

The Investor’s Business Daily reported Bank of America analyst Jason Kupferberg as saying investors were “skittish” about Q3 results particularly for the Cash App. "There is some concern the Delta variant could have been a headwind for part of the quarter," Kupferberg added.

Yet, given its growth trajectory, it probably still pays to be Square.