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Square (SQ) Plans to Buy Credit Karma Tax to Bolster Portfolio

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Zacks Equity Research
·3 min read
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Square, Inc. SQ continues to execute its strategic plans properly in a bid to bolster the portfolio of online financial services in this data-driven world.

This is evident from the company’s latest agreement with Credit Karma to acquire the latter’s tax business, namely Credit Karma Tax.

Notably, Credit Karma Tax offers a free tax-filing service, which is a do-it-yourself one via its mobile-first solution.

Post the completion of this acquisition, the underlined business will be added to the tools portfolio of Square’s Cash App,which already offers solutions for direct deposits, peer-to-peer payments, Cash Card, and fractional investing in traditional stocks and bitcoin.

The acquisition under review is expected to be closed before the end of this year.

Deal Rationale

The latest move holds promise for Square in this fast-paced world.

Square with Credit Karma Tax will be able to capitalize on the increasing demand for self-tax filing services. Moreover, the move is likely to boost the company’s reach to Americans who are largely adopting such services currently.

We note that there were almost 80 million tax-payers in the recent tax-filing season who filed their tax returns themselves online, per IRS data.

Out of this, Credit Karma Tax processed tax returns of more than two million tax-payers.

The popularity of this service is likely to help Square in gaining strong traction among tax-payers in the near term.

Square, Inc. Price and Consensus

 

Square, Inc. Price and Consensus
Square, Inc. Price and Consensus

Square, Inc. price-consensus-chart | Square, Inc. Quote

Bottom Line

Notably, the growing momentum of Credit Karma Tax bodes well for the company’s deepening focus toward expanding Cash App’s user base.

Moreover, Cash App, which was unveiled in 2013, has become the cash cow for the company.

In third-quarter 2020, Square got highly benefited from strong Cash App engagement and its growing monthly active customer base. We note that the service yielded $385 million worthof gross profit in the same quarter.

Apart from this, the latest move will boost Square’s reach to the underserved community, which is in sync with its strengthening efforts toward the expansion of its offerings for the unbanked and underbanked customers.

We believe all the above-mentioned avenues will further bolster Square’s footprint in the booming online financial services market.

Zacks Rank & Stocks to Consider

Currently, Square carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Covetrus, Inc. CVET, Teradyne, Inc. TER and Trimble Inc. TRMB. All three companies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Long-term earnings growth rates for Covetrus, Teradyne and Trimble are currently pegged at 20.1%, 16.74% and 10%, respectively.

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