Shares of electronic payments firm Square (NYSE:SQ) have already been on a complete tear since it went back in November 2015. SQ stock is trading in $146.55 so it’s returned a shocking 1,530% since its IPO. Consequently, in the event that you spent $1,000 at Square stock throughout its IPO, you’d have returned $15,300 today.
SQ stock’s impressive rally, nevertheless, was volatile. It climbed to $100 per share at September 2018 before falling into a low of $32.3 at March 2020, amid the coronavirus-led keep industry. This implies SQ stock is upward 353% in under five months.
Let’s take a peek at what’s influenced Square stock in 2020 and whether or not it stays a good bet for 2020 and outside.
Check out Square’s company model
Square was set in 2009 to empower small and medium companies to take card payments. This was a significant capability that has been previously inaccessible to several SMB’s. Square appears to combine hardware, software, and fiscal services to make products which empower the electronic transformation of SMBs.
Through time, Square focused on expanding its product portfolio since it recognized vendors require an assortment of payment options to sustain a flourishing small business. It currently has over 30 services and products such as the popular Cash Program that’s helped Square develop to a multi-billion-dollar firm.
Square has managed to include new vendors and cross-sell services and products that drove earnings growth higher. Its seller-base is well diversified and includes companies throughout restaurants, retail, and other providers. These companies are located in the USA, Canada, Japan, Australia, and the Uk.
In 2019, it processed $106.2 billion in gross payment quantity (GPV) and 2.3 million card payments from 407 million payment cards. Gross Payment Volume is the entire sum spent on the Square platform with its own SMB spouse clients.
Square’s Money App stipulates an ecosystem of products that will assist individuals manage their cash. The money App started off as an instrument to ease digital payments and today supplies a platform for consumers to save, send, get, invest, and invest their cash.
The money App stopped 2019 with 24 million yearly active clients and has grown to more than 30 million.
Record Q2 results drive SQ stock higher
Now that we have seen the primary business segments of Square, let’s take a look at its recent second-quarter results announced on August 4, 2020. In Q2, Square reported sales of $1.92 billion and earnings per share of $0.18. This was significantly higher than Wall Street revenue estimates of $1.13 billion. Analysts in fact forecast Square to report a net loss of $0.05 per share.
SQ stock gained over 7% on August 5 and touched an intra-day record high of $158.43 per share. Square sales in Q2 were up 64% year-over-year and gross profit rose 28% to $597 million.
The company confirmed that its seller ecosystem generated gross profit of $316 million, down 9% year-over-year. However, this decline was offset by a stellar performance of the Cash App where gross profits rose 167% to $281 million.
Square said, “Although Seller GPV (Gross Payment Volume) declined in the second quarter of 2020 on a year-over-year basis, GPV trends in our Seller business improved sequentially each month in the quarter, driven primarily by sellers resuming operations as COVID-19–related restrictions eased, consumers increasing spending, sellers adapting to contactless commerce, and new sellers joining Square.”
Another major metric for Square is its GPV from online channels that rose by 50% and accounted for 25% of total GPV in Q2. This figure is expected to move higher in the upcoming months as the shift to online shopping and related transactions continue to accelerate.
Cash App is key for Square’s long-term growth
Square continues to rapidly scale its network of Cash App customers. In Q2, the number of products adopted by customers in their first month after activation includes the Cash Card, direct deposit, Boost, and bitcoin investing. Customers who use multiple products have higher lifetime value and generated significantly higher revenue compared to just peer-to-peer payment users, claimed Square.
The Square Card is a business debit card that gives users real-time access to the money processed with Square. The Square Card can be used anywhere where Mastercard is accepted with zero monthly or annual charges.
Square stated, “Customers increasingly used Cash App as a way to send and spend money: In June, Cash App had more than 30 million monthly transacting active customers, with more than 7 million spending on Cash Card.”
In Q2, Cash App customers transacted over 15x per month on average, indicating an increase of 50% year-over-year. This increase was driven by higher user engagement as well as the deployment of government funds related to stimulus and unemployment benefits.
Square experienced a positive relationship between Cash Card and direct deposit customers. In Q2 direct deposit actives were among the most engaged Cash Card customers and spent significantly higher than Cash Card actives. The company has integrated these two products where a new Cash Card customer will receive an account and routing number that can be used to receive deposits or pay bills.
Square is well poised to disrupt the peer to peer financial products industry that may be in direct competition with retail banking solutions. There is a strong possibility that Cash App users will leverage its various features which might make the checking account redundant.
A look at the valuation for SQ stock
SQ stock is trading at a market cap of $64.4 billion. Considering its expected revenue of $5.88 billion in 2020, its forward price to sales multiple stands at 11x. Comparatively, its forward price to earnings multiple is close to 400, given the EPS forecast of $0.37 in 2020.
These multiples are sky-high but we also know that growth stocks trade at a premium. While SQ stock might be volatile in the near-term, growth investors need to view every major correction as a buying opportunity and look to buy a stock that has the potential to create massive wealth in the upcoming decade.
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SQ shares were trading at $153.62 per share on Thursday afternoon, up $7.07 (+4.82%). Year-to-date, SQ has gained 145.56%, versus a 4.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya RaghunathAditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U. ) S. and also Canada, including The Motley Fool, Finscreener, and Market Realist. More…More Resources for the Stocks from this Report