Sq. inventory rises after surpassing earnings by a mile. Analysts welcome the expansion of the Money app
Jack Dorsey, CEO of Twitter and Square, speaks during a press event at CES 2019 on January 9, 2019 in Las Vegas, Nevada.
David Becker | Getty Images News | Getty Images
Square shares rose 13% on Friday after beating Wall Street expectations for the quarter the day before.
The San Francisco-based payment company saw net sales increase 140% to $ 3.03 billion for the third quarter. The adjusted result was 34 cents and thus more than twice as high as expected by the analysts surveyed by Refinitiv.
The Square Cash app was a key driver of the strong results and excitement of the analysts. The payment and banking app more than tripled its gross profit from last year, accounting for nearly half of the company's total gross profit of $ 794 million.
The app started out as a peer-to-peer payment option, similar to PayPal's Venmo. However, since then Square has launched several bank-like products that rely on the app, including cryptocurrency and stock trading, which have made the units more economically viable and profitable than Venmo.
The results were a hit among several Wall Street analysts who recommended the stock to customers on Friday. Citi, Cannacord Genuity, Needham, Mizuho and Susquehanna all improved price targets on Square after the breakout quarter. In a statement to customers, Citi analyst Peter Christiansen described Square's growth opportunity as "too big to ignore".
Lisa Ellis of Moffett Nathanson kept her Buy recommendation on Square, but raised earnings estimates through 2021. Despite the stock's surge this year and "rather heightened investor expectations," the company managed to "beat a mile," said Ellis in a note to customers.
Guggenheim's Jeff Cantwell highlighted Square's potential to mimic the success of China's Alipay and wrote that "Square should make the Cash app a super app". Mizuho's Dan Dolev pointed to the growth of the cash app's brokerage function, saying the app shows that "it can be Robinhood too," referring to the popular free trading app.
The cash app boom offset the relatively slower growth in Square's core business, which enables in-person payments at brick and mortar locations like coffee shops. Small businesses that rely on Square's payment terminals are particularly hard hit during the pandemic. However, the seller business has continued "its remarkable recovery," said Ellis of Moffett Nathanson. The gross profit increased by 12% compared to the same quarter of the previous year.
The stock is up 217% since the start of the year and is up 28% in the past week alone.