Has Square Been The Real Winner Of Wall Street’s Crazy Week?

We’ve spoken at length already about the abnormal stock market behavior this week, but one company looks set to benefit from this.

Yesterday was not the easiest day to be a stock market writer, researcher, analyst, or just about affiliated in any way. When friends that have never expressed the slightest interest in stocks are suddenly reaching out to ask you why GameStop is on the national news, you know that things have gotten out of control. 

However, as difficult as it might seem, if you actually look past yesterday’s drama, you’d see that the market actually had a pretty good day.

  • All the major indexes were in the green. 
  • Earnings have been very impressive all ‘round.
  • The financial sector has been very strong — the Financial Select Sector SPDR ETF rose 2.5%.

And it’s in relation to that last point where payment solutions leader Square (NYSE: SQ) comes in.

Why is Square on the rise?

It’s not just because of Bitcoin, so let’s not even go there! I’ve had enough drama this week… But there are several reasons:

1. Trading App Drama

The recent volatility is boosting interest in retail trading. The  Cash App is a beneficiary of this, allowing users to buy and sell stocks.

2. Bitcoin

Ok, fine, so Bitcoin is slightly responsible for Square’s growth… Cryptocurrencies have risen sharply over the past few months and Square not only has some Bitcoin on its balance sheet but allows Cash App users to buy and sell the digital currency.

3. Transaction Growth

Now, this is where Square’s safer, more sustainable growth will come from and should be of most interest to investors. 

Although Square’s earnings call is not until February 23, there was a lot of optimism following an earnings beat from market leaders Visa and Mastercard yesterday. A key figure from these earnings holds some clues as to why Square investors should be getting excited:

Transaction volume on Mastercard’s network grew 11%, 10%, and 7% year-over-year in the first 3 weeks of January, respectively. 

Increased transaction volume has been a key catalyst behind Square’s growth in recent years — its stock rose 253% in 2020 alone — while it also continued its impressive run of form in Q3 2020, where it topped earnings and revenue. Judging from the results of Mastercard and Visa, investors can expect similar, or possibly even more impressive growth from Square in its earnings report next month. 

If that wasn’t enough, then investors should also be boosted by the fact that Square’s growth is not just a substantial short squeeze like we’re seeing elsewhere in the market. Though this is partially responsible, there are also some good reasons for this upward move we’re seeing in Square, and with transaction volume on the rise and potentially a legion of disgruntled Robinhood users migrating to its Cash App platform, it could certainly be a needle mover for Square’s business.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here

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