At the beginning of July, I profiled Square (SQ) like the Bear of the Day – although I was still very optimistic about this “Apple of Fintech” disruptor – because analysts’ EPS revisions had brought the stock down to Zacks Rank.
Here is what I wrote then …
Square is a mad geniusS-level disruptive tech platform that just launched over 100% in Q2 because many short-sighted, valuation-focused selling analysts and hedge funds have kept it below $ 75 for so long .
And as of July 9, the stock just hit the moon above $ 133, for over 25% in earnings this month alone. Apparently (some) blind people have started to see.
Meanwhile, UBS and BofA offered downgrades to “Sell” and “Underperform” in May after the company’s last quarterly report as stocks came back above $ 70.
And I think a Cowen analyst yesterday performed a much more timely demotion after SQ’s “200% rally” from Coronavirus Crash lows. By lowering their rating on Outperform’s Market Perform, they also figured they should increase their price target from $ 79 to something a little more respectable like $ 119.
(article excerpt from July 10)
I spent the rest of this article describing what most analysts were missing, how I stupidly listened to them, and what two other geniuses saw clearly. If I had listened more closely to Jamie Dimon, who runs a small bank you’ve probably heard of, and Dan Dolev, then Square analyst at Nomura Instinet, I would be sitting on over 200% of SQ stock gains this year. More information on their views to come.
And yet, not a week after this detailed bullish case I presented, Square was initiated with a neutral rating and a price target of $ 133 at Goldman Sachs. Analyst Matthew O’Neill has started 15 companies in the payments and IT services space, favoring companies with “strong secular growth trends” and those with the potential for full addressable market expansion.
O’Neill noted that COVID-19 will accelerate greater adoption of contactless payments and e-commerce, to the benefit of networks, acquirers and processors. But he believed that “Cash App’s consensual enthusiasm” might prove too optimistic in the near term to warrant further appreciation in the already rich valuation of Square shares.
June quarter drops their socks
In early August, Square released a report on the coronavirus which was anything but a recession. Sales and profits increased as online business activity made up for the loss of in-person transactions for which the eponymous dongle became famous. Net income for the quarter was $ 1.92 billion versus the consensus of $ 1.14 billion – for an unprecedented 69% beat – and Adjusted EPS was +18 cents versus Zacks’ consensus of – 7 cents, for a beat of 350%.
RBC Capital analyst Daniel Perlin reacted strongly to the rise, which raised the company’s price target on Square to $ 200 from $ 119 after the company reported implied adjusted net income of $ 677 million , which was up 20% year over year and beat both. its forecasts and those of the consensus. He upped his revenue and profit estimates following the “very impressive” Q2, which he said exemplifies the company’s innovation, speed and ability to pivot quickly, Perlin told investors.
Dan Dolev is back!
Many analysts followed Perlin’s lead in August, with an average price target hitting $ 170. But I was wondering why I hadn’t heard of SQ’s biggest bull of all, Dan Dolev, and his exclusive ‘Cash App vs Venmo’ tracker that he has been using for years to chart Square’s competitive position. compared to that of Square. Pay Pal (PYPL).
It turns out that Dan was in transition to another large Japanese i-bank. Here is his debut on August 26 …
Mizuho starts Square with a buy note and a price target of $ 225: Analyst Dan Dolev kicked off the Square cover, reiterating his long-held belief that the fintech disruptor is best positioned to profit from the dislocation of small and midsize businesses. Citing that the ‘top’ unit economics for its Cash app could help quadruple gross profit growth, Dolev noted that Square’s margins are ‘underestimated’ as it seeks to maximize its terminal value. .
Then, at the end of September, Dolev released a note saying that Square’s Cash app is “virtually unstoppable.” After meeting with Square management, Dolev reaffirmed their pitch regarding the total addressable Cash App market, average revenue per user potential, user growth prospects, and revenue sustainability. The SQ fortune teller said the average revenue per Cash App user had “grown dramatically,” from nothing to $ 45 in just five years. And he estimated that number could reach $ 80 or more by 2023.
Cash is Dead, Long live the Cash application
Also in September, Daren Fonda, writing for Barron’s, observed that silver usage was already at an all-time low at the start of the new decade and that COVID-19 had just accelerated the decline as Americans stuck at home and now still wary of proximity. necessary for the physical exchange of potentially infectious invoices. While Fonda noted that the PYPL and SQ valuations were pushing to extremes, he warned long-term investors that there was still time to get started.
I agreed in my recent confidential Zacks report Demographics and the economy: a strong case for the bull market of the 1920s where I made SQ one of my top 3 picks for the decade of virtual, remote and digital disruption. To see my full thesis and other choices, just email [email protected] and tell them Cooker sent you.
Wall Street analysts also agree with estimates that have risen sharply since the August earnings report. The revenue consensus for this year now stands at 49% growth to exceed $ 7 billion and a 27% lead is forecast for next year’s revenue to reach nearly $ 9 billion .
For earnings estimates, even though the consensus is at just 53 cents, for a 35% drop, that’s up from the Armageddon scenario predicted over two months ago at just 18 cents BPA . And next year’s goal is $ 1.15, which is over 120% growth.
These rising estimates explain why SQ is a Zacks # 1 rank again.
Dimon: Square innovated where we should have
As for Jamie Dimon, I can only share and still enjoy his quotes from a February 2019 article in American Banker by Andy Peters…
“They came up with this little dongle to process things and it was a great idea,” Dimon said.
Square then built on the success of its card reader to provide other services to its business customers, such as a greater variety of point-of-sale systems that allow merchants to accept payments in cash or by card. It also provides merchants with tablets and software that allows them to track sales patterns, inventory, and other important data.
“We didn’t give them that opportunity, Square did,” Dimon said. Finally, Dimon lamented that Square beat JPMorgan to the punch in providing small business loans online.
Square Capital, its online lending arm, began offering business loans in early 2014 – nearly two years before JPMorgan began providing its own digital loans to small businesses through a partnership with fintech lender OnDeck Capital. .
Square “said,” you know what, since we know this business and they might need an advance at this time of year, we could advance them $ 10,000 or $ 15,000 or $ 100,000. “Said Dimon. Is doing what we haven’t done.
The mark of a great leader is to recognize and admit failures and hopefully learn from them. I wonder if Jamie thought about trying to buy SQ when it was on sale last spring at $ 25 billion.
I wish I had held on to my actions. And let’s hope I’ve learned my lesson about sustaining disruptive innovation.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.