It seems almost impossible to open a paper or read an article lately without everything coming back to the coronavirus, but unfortunately, that is the world we are living in. The same goes for Square’s (NYSE: SQ) recent rally.
As the world adapts to a – dare I say it? — ‘new normal’, private Peloton (NASDAQ: PTON) sessions, Zoom (NASDAQ: ZM) calls with friends, and 3 day-long Netflix (NASDAQ: NFLX) binges are regular occurrences. Ok, the Netflix part probably isn’t new for many of us, but life in quarantine is definitely a thing now…
Meanwhile, as hand sanitizer, face masks, and social distancing practices are implemented at every corner of society, from your local café to Walmart (NYSE: WMT), another practice is becoming a thing of the past: physical cash. And that’s where Square comes in.
What’s going on with Square stock?
Square is having a moment right now as its 30% rally in June has spilled over into July, with its stock rising just short of 20% in the first 5 days of trading and hitting all-time highs. These gains come off the back of a surge in cashless payments in brick-and-mortar retail stores as well as private use as people are less willing to handle physical cash.
While the overall market has rallied strongly since its March lows, led mainly by the likes of Amazon (NASDAQ: AMZN) the rest of ‘Big Tech’, there has been increased volatility of late, with the S&P 500 (NYSEARCA: VOO) and Nasdaq (NYSEARCA: QQQ) snapping their five-day winning streaks on Tuesday.
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Square, on the other hand, continues to go from strength to strength and has risen 230% since its mid-March lows. Its market cap of $55 billion is now more than double that of Jack Dorsey’s other venture, Twitter (NYSE: TWTR). Though Square’s Q1 earnings missed analyst targets with losses per share of $0.02 on revenue of $1.38 billion, it provided a lot of optimism through its Paycheck Protection Program loans to small businesses which amounts to close to $1 billion.
Not only that but Square is bringing its U.S. popularity to Europe, having recently closed the purchase of Spanish payment business Verse, giving it a foothold on the European continent and within the Euro currency.
Why you should buy-and-hold Square stock
Despite the numerous competitors that make up the payment solutions space — PayPal (NASDAQ: PYPL), StoneCo (NASDAQ: STNE), and Mercado Libre (NASDAQ: MELI) to name a few — there is still ample opportunity for growth in the sector. Even before the coronavirus pandemic, the global digital payments market was expected to enjoy annual growth of around 18% between 2020 and 2025. COVID-19 has served only to accelerate the need for this growth and Square’s cash app is helping it play with the big boys in the field, with monthly active users growing 60% in 2019 alone to 24 million.
Despite its apparent reliance on small to medium-sized businesses, Square has actually seen success in 2020 through Square Capital, its loan segment. During this pandemic, Square has forked out more than $800 million in loans as part of the Paycheck Protection Program. Prior to the virus, it had lent about $6 billion to over 300,000 businesses. While this might seem risky given the current market climate, it still shows the company’s expansion into other revenue streams.
Another reason to invest in Square is that its revenue is expanding at a favorable rate, even through this pandemic, with total net revenue coming in at $1.38 billion in the first quarter of 2020, up 44% year over year, while gross profit was $539 million, up 36% year over year. This comes after the company posted a gross profit of $1.89 billion for 2019, up 45% on 2018.
With mobile and digital payments on the rise, e-commerce experiencing explosive growth, and the recent Wirecard scandal increasing demand for safe payment solutions, Square stands poised to benefit in the long run.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Square. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.