Square Inc (NYSE: SQ) has taken a pounding in recent weeks and is now down 32% overall in the past year. Despite some impressive growth potential, one analyst said Wednesday slowing revenue trends and rising competition are keeping him on the sidelines when it comes to Square.
Bank of America analyst Jason Kupferberg reiterated his Neutral rating and cut his Square price target from $78 to $70.
Kupferberg said Square exceeded consensus revenue estimates by just 1.4% in the second quarter, and the fact that it didn’t raise its full-year revenue guidance was a negative surprise. Gross payment volume growth also slowed.
Kupferberg said Square has an enviable market positioning in the high-growth payments space, but even after the sell-off the stock is fully valued at an EV/sales multiple of 8.4.
In addition, Kupferger said there are too many questions surrounding Square’s outlook for 2020 and beyond. Square’s pending sale of Caviar to DoorDash creates some noise when it comes to 2020 guidance.
Investors are also waiting to see how Square plans to invest the $410 million in cash it gets from the sale. Kupferberg is expecting heavy investments in Square’s Seller and Cash App platforms in 2020. These investments will weigh on Square’s earnings, and Kupferberg has cut his 2020 adjusted EBITDA estimate from $639 million to $598 million, well below consensus estimates of $630 million.
In addition to all of the growth concerns Kupferberg mentioned in his commentary, the rise of payment competitors such as Stripe and JPMorgan Chase & Co. (NYSE: JPM) subsidiary WePay creates tremendous uncertainty for a stock like Square. Even after the large sell-off Square is still trading at a steep forward earnings multiple of 54.4.
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