Square Announces Pricing of Notes, Strengthens Balance Sheet
Square, Inc. SQ recently announced an offering of convertible senior notes aggregating $1 billion.
The notes were issued in two tranches of $500 million each, scheduled to mature in 2026 and 2027, respectively.
The notes will be privately offered to institutional buyers qualifying under Rule 144A of the Securities Act of 1933, as amended.
The company will also provide a 30-day option to underwriters of “2026 Notes" and “2027 Notes” to purchase up to an additional $75 million of common stock, in each case. These notes, once placed, will be an unsecured senior liability of Square.
Square will disclose interest rate, conversion rate and other terms after determining the pricing of the offering. However, it has stated that the interest payment will be semi-annual. The offering is subject to customary closing conditions.
Square intends to utilize the net proceeds from the aforementioned offerings to pay the cost of the convertible note hedge transactions. It also intends to utilize the remaining net proceeds for general corporate purposes.
Square, Inc. Price and Consensus
Square, Inc. price-consensus-chart | Square, Inc. Quote
Cash Position
At the end of third-quarter 2020, its cash and short-term investments totaled $2.1 billion, up from $1.9 billion in the prior quarter.
Short-term investments were $762.4 million for the last reported quarter, up from $714.3 million in the previous quarter.
Long-term debt was $1.76 billion, decreasing from $1.77 billion in the previous quarter.
We believe that the company has a strong balance sheet, which will help it capitalize on investment opportunities and pursue strategic acquisitions, further improving prospects. In our view, the senior notes’ offering will bring down the company’s cost of capital, in turn strengthening the balance sheet and supporting growth.
These notes should provide financial flexibility and propel long-term growth.
Growth Drivers
Square’s continuous efforts to expand presence in the digital payment solutions space on the back of strengthening product portfolio have been playing a significant role in shaping the growth trajectory.
Expanding key offerings will continue to help Square to attract more sellers to its platform and accelerate payment transactions further. This, in turn, will drive growth in its gross payment volume.
Moreover, strengthening payment solutions will continue to aid Square in bolstering competitive position against PayPal PYPL, which is also a strong contender.
During the recently reported quarter, Square’s adjusted earnings of 34 cents per share surpassed the Zacks Consensus Estimate by 142.8%. Also, net revenues of $3.03 billion comfortably surpassed the Zacks Consensus Estimate of $2.15 billion. Further, the top line improved 140% from the prior-ago quarter.
The top line was driven by a strong momentum across the Cash App ecosystem that contributed $2.07 billion to net revenues during the last reported quarter, up 574% year over year.
We believe strengthening momentum across Bitcoin and strong adoption of Cash Card are major growth catalysts.
Share Price Performance
A glimpse of the company’s price trend shows that the stock has had an impressive run on the bourses in the past year. Square has returned 67% compared with the industry’s 21.8% rally in the said period.
One-Year Price Performance
Zacks Rank and Stocks to Consider
Square currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include MACOM Technology Solutions Holdings, Inc. MTSI and Overstock.com, Inc. OSTK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth for MACOM Technology and Overstock.com is currently projected at 30.9% and 20%, respectively.
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