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Forget Facebook's Cryptocurrency Play Libra and Buy Square (SQ) Stock?

Benjamin Rains

Square SQ stock is down roughly 3.5% over the last three months as investors decide what’s next for the once high-flying financial tech giant. The downturn can be blamed, in part, on Square’s subdued Q1 gross payment volume and lowered Q2 guidance. With that said, Square’s outlook appears especially strong amid growing uncertainty for tech stocks.

FB Crypto

Wall Street is abuzz with commentary about Facebook’s FB jump into the world of cryptocurrency. The social media giant had teased its plans for some time, but officially announced on Tuesday initial details of its blockchain-based payment system called Libra, which will be backed by hard assets.

Mark Zuckerberg’s firm said it partnered with the likes of Uber UBER and Spotify SPOT, as well as financial-services powers Mastercard MA and PayPal PYPL on Libra. Facebook’s move is part of a larger plan to diversify its business, which has become perhaps even more critical amid further speculation that U.S. government regulators could take action against FB, along with fellow tech powers Google GOOGL and maybe even Apple AAPL and Amazon AMZN.

 

 

Expanding Portfolio

There is no need to speculate about Facebook’s cryptocurrency plans any further at the moment, but it seems far from a surefire hit given FB’s recent user privacy woes. With that said, Square helped kickstart the fintech craze a decade ago with its first credit card processor and software aimed to help micro-businesses and entrepreneurs adapt in an ever-more cashless society.

Today, SQ, which is run by Twitter TWTR CEO Jack Dorsey, is a much more complete financial services firm. The San Francisco-based company’s portfolio includes debit cards, peer-to-peer payment options, business loans, and a robust set of business-focused payment and money management offerings.  

SQ’s P2P payment platform, The Cash App, helps Square stands out against rivals like JP Morgan JPM and PayPal’s Venmo. The Cash App also allows users to buy and sell bitcoin. The firm has also expanded through acquisitions, including food delivery firm Caviar, which competes with Grubhub GRUB, as well as e-commerce-focused Shopify SHOP-rival Weebly.

Meanwhile, Square’s back-end, in-app payment infrastructure offerings have helped the firm expand. These have made the firm more attractive to bigger businesses. For example, 24% of its Q1 GPV came from “larger sellers,” who pulled in $500K in annualized GPV.

As we mentioned at the top, shares of SQ have slipped lately. Despite the recent downturn, Square stock is up 30% in 2019 and closed regular trading Wednesday up 1.17% to $72.66 per share—down roughly 28% from its 52-week intraday high of $101.15.

Outlook

Looking ahead, our current Zacks Consensus Estimate calls for the company’s second quarter fiscal 2019 revenue to jump 36.4% to $1.11 billion. This would mark a slowdown from Q1’s 43% top-line expansion, but still represents impressive growth amid what looks to be a downturn for tech stocks on average. Square’s full-year revenue is then projected to climb roughly 36% from $3.30 billion to $4.48 billion.

At the bottom end of the income statement, SQ’s adjusted Q2 EPS figure is projected to jump 23%. The company’s third-quarter earnings are expected to skyrocket 69%, with fiscal 2019 projected to soar 61% to reach $0.76 per share. Peaking further down the road, Square’s 2020 earnings are expected to surge 47% above our current year estimate, in a sign of strong bottom-line expansion.

 

 

Bottom Line

Square’s longer-term earnings estimate revision activity helps it earn a Zack Ranks #2 (Buy) at the moment. The firm also sports “B” grades for Growth and Momentum in our Style Scores system and looks to be a growth-focused tech stock for investors to consider buying on the dip.

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