Square’s [SQ] share price popped over 10% Monday morning following Sunday’s surprise release of second-quarter earnings. In the quarter, the payment provider posted earnings of $0.40 a share, with total net revenue coming in at $4.68 billion, up 143% year-on-year.
Square has been topping Wall Street’s expectations and this time was no different, making it five beats in a row. Analysts had been expecting Square to post earnings of $0.30 a share in the second quarter, up from $0.18 a share in the same quarter last year.
Bitcoin costs came in at $2.67bn in the second quarter, despite the cryptocurrency bringing in $2.72bn in revenue. Square’s big bitcoin bet had also weighed on earnings in the first quarter when it posted a $20m loss on its bitcoin investment.
Square's Q2 net revenue - a 143% YoY rise
Another surprise was the announcement that Square was buying Australian firm Afterpay in a $29bn all-stock deal as it sought to cash in on the ‘buy now, pay later’ trend.
After the initial pop, Square’s share price closed down 1% Tuesday. However, following this set of solid numbers, the payments provider could represent a long-term opportunity.
What’s happening with Square’s share price?
Square’s share price performance this year might come as a disappointment for anyone expecting the same kind of outsized performance experienced last year.
In 2020, Square’s share price gained just over 245% on what was a near-continuous upward trend from mid-March. The big growth driver was the pandemic, with retailers quickly having to transition online as bricks and mortar shops were shut during lockdown, while customers ditched cash for contactless payments. The other big growth driver was Square’s Cash App, which delivered $1.23bn in gross profit in 2020, up 168% year-on-year.
Square's share price gains in 2020
But 2021 hasn't been a write-off either with Square’s share price up over 25% since the start of the year. And Square's exposure to long-term thematic growth trends make it a stock to ‘buy and hold forever’, according to The Motley Fool’s Prosper Junior Bakiny.
Is Square a long-term investment?
Bakiny suggests that Square’s long-term plan to deliver banking services to ‘underserved communities’ is where the potential is, citing Square’s Cash App and Seller ecosystem.
In the second quarter, Cash App pulled in a gross profit of $546 million, up 94% year over year. Square’s Seller ecosystem also had a robust quarter, generating gross profit of $585 million, up 85% year over year. In February, chief financial officer Amrita Ahuja said Cash App had a total addressable market of $60bn during an earnings call.
Cash App’s strong numbers this quarter follow on from the app delivering $495m in gross profit in the first quarter, up 171% year over year. In June, Cash App had 40m monthly transacting users with Square saying that it was focusing marketing efforts to attract more customers on to Cash App ‘who could use more [Square] products and bring greater funds into our ecosystem’. As Cash App grows, bringing in more funds that can be used on the wider product ecosystem, then Square’s share price could keep gaining.
“As customers find value across our ecosystem, they have brought more money into Cash App: Inflows per monthly transacting active customer nearly doubled compared to two years ago, benefiting from recent increases in consumer spending” - Square's shareholder letter
“As customers find value across our ecosystem, they have brought more money into Cash App: Inflows per monthly transacting active customer nearly doubled compared to two years ago, benefiting from recent increases in consumer spending,” Square said in its second-quarter shareholder letter.
Among the analysts tracking Square’s share price on Yahoo Finance, the stock has an average $276.70 price target - hitting this would see a 2.7% upside on Tuesday’s close. Of the 31 analysts offering recommendations, 4 rate Square a Strong Buy and 13 a Buy.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.