Square has had quite the year so far. Up more than 140% since January 1st, it wasn’t all smooth sailing for the payments processor. Falling to a low of $32 in March on fears of the global pandemic decimating its primary customer base — small, independent businesses — Square has since recovered and flourished, with the stock reaching a peak of $190 thanks to the acceleration of cashless payments, as well as the continued growth of its Cash App.
However, this rally has hit the skids recently on news of encroachment from its competitors, coupled with a wider market sell-off in which the year’s high-flying growth stocks have seen their wings clipped due to increased market uncertainty. With all this going on, it seems the perfect time for the company to show us its books for the previous quarter.
What can we expect from Square’s earnings call on Thursday, November 5th?
The consensus estimates for Square’s Q3 are $2.08 billion in revenue and $0.14 earnings per share (EPS). This represents a 245% year-over-year increase in revenue, while EPS would be down 36%. Square has a good history of outperformance, with 7 of its last 8 reports beating estimates, and the previous quarter in particular stunning Wall Street as it reported revenue of $1.92 billion versus estimates of $1.3 billion. Another beat would be welcomed as the stock has fallen 19% in the past three weeks.
As mentioned earlier, the recent sell-off in Square was initiated by increased competition from two fronts. JPMorgan Chase is launching a new payment ecosystem that combines a smartphone card-reader and a digital payments platform called QuickAccept, which would compete directly with Square.
The other shark in the water is PayPal, which will begin to facilitate the buying and selling of cryptocurrency over its PayPal and Venmo platforms, an area in which Square collected $875 million in revenue last quarter. With two of the biggest names in the financial space making a move for Square’s lunch, expect a lot of the questions asked of its executive team on Thursday to revolve around its response to this increased competition.
Touted by many as one of the primary drivers of growth for the company, Square’s Cash App will be under increased scrutiny as the stimulus tailwinds of the previous quarter will be missing in Q3. Look out for growth in Cash App users, as well as growth in Cash Card users.
Square purchased $50 million in Bitcoin in early October and the revenue from the buying and selling of the cryptocurrency came in at $875 million in the previous quarter. However, only $17 million of this was actual profit. While this $50 million figure only represents 1% of the company’s total assets, coupled with the massive growth in trading of Bitcoin on Square’s platform, are we seeing the start of a strategic shift towards the cryptocurrency? I predict Bitcoin to be a hot topic at this week’s earnings report.
Dorsey has found himself in the headlines a lot recently thanks to his side-gig as CEO of Twitter. The social media giant is a hot topic as the election looms and Dorsey recently found himself in front of a congressional hearing about how Twitter moderates its platform and the future of free speech on the web. What this spells out for Square shareholders is a distraction from running the company. With the majority of his wealth tied up in Square, and the fact that the payments processor is twice the size of Twitter in terms of market cap, we can expect to see some questions surrounding the use of Jack’s time.
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Financial Analyst at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.