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Is Square (SQ) Stock Still a Long-Term Buy Following Earnings?

Benjamin Rains

Square SQ saw its stock price fall last week despite posting better-than-expected first-quarter fiscal 2019 earnings and revenue results. Instead, subdued gross payment volume and lower-than-projected second quarter guidance likely sparked the small selloff.

With that said, let’s see if investors should still consider buying Square stock as a longer-term investment within the larger fintech industry.

Quick Q1 Overview

Square posted adjusted Q1 earnings of $0.11 per share, which topped our $0.08 a share Zacks Consensus Estimate and marked an impressive climb from the year-ago period’s $0.06 per share. The company’s revenue surged 43% to $959.36 million. This topped our estimate and looks even better when we consider that SQ’s first-quarter 2018 sales soared 45% as well.

Despite Square’s earnings and revenue beats, the company’s gross payment volume, a widely tracked metric, came in at $22.6 billion. This fell just below Wall Street estimates that called for $22.8 billion. And looking ahead, the company now expects to report second-quarter earnings between $0.14 to $0.16 per share. Meanwhile, Square executives expect revenue in the $1.09 to $1.11 billion range. Both SQ’s new top and bottom-line guidance came in below initial estimates.

As we mentioned at the top, shares of Square fell following its release last week. Shares of SQ did pop Monday, up 2.47% to $70.21 through regular trading hours. Jumping back even further, we can see that Square stock has destroyed its industry’s average over the last two years and its fintech peer PayPal PYPL.

Plus, investors will note just how strong SQ’s two-year run has been, easily crushing FAANG standout Netflix NFLX. Better still, Square stock currently rests roughly 30% below its 52-week intraday high of $101.15 per share, which should give the stock plenty of room to run.

 

 

Outlook

Wall Street and some investors might have overreacted to Square’s second-quarter guidance. But Monday’s bounce-back could be a sign that people have moved onto the fact that the fintech firm raised its full-year revenue guidance and maintained its adjusted fiscal 2019 earnings outlook.

The company now expects to post full-year revenue between $4.41 and $4.47 billion, up from its previous $4.35 to $4.41 billion range. For reference, our current Zacks estimates call for the company’s full-year revenues to jump 34% from $3.30 billion in 2018 to touch $4.42 billion. At the bottom end of the income statement, the firm’s adjusted full-year EPS figure is projected to soar 60% to $0.75 per share, based on our current Zacks Consensus Estimate.

 

 

Growth Possibilities

Square helped kick off the current fintech revolution back in 2009, when it launched its first credit card processor and software aimed to help micro-businesses and entrepreneurs adapt in an ever-more cashless society. Since then, Square, with the help of CEO Jack Dorsey—who also runs Twitter TWTR—has transformed into a well-rounded financial services firm. The San Francisco-based company now offers business loans, peer-to-peer payment options, debit cards, and more.

SQ’s P2P payment platform, The Cash App, helps Square stands out against rivals like JP Morgan JPM and PayPal’s Venmo. Meanwhile, Square’s back-end, in-app payment infrastructure offerings could become more important as some estimates suggest that mobile will account for almost half of all digital retail sales by 2020.

Bottom Line

Square is currently a Zack Ranks #3 (Hold) that rocks a “B” grade for Growth in our Style Scores system. In the end, investors might want to consider buying SQ stock as a way to add a solid growth tech stock to their portfolios.

Plus, the overall fintech industry has the potential to expand exponentially, and like it or not, many large economies are trending in a more cashless direction, which should help Square. “One, the government is working to double card payments and they are pushing and incentivizing both consumers and also sellers to use more digital means of payments, instead of paper cash,” Square’s CEO said on the company’s earnings call.

Going forward, Square is set to roll out more financial services offerings in an effort to further challenge the traditional banking and credit card industries. And even Apple AAPL has bet on the future of fintech in an effort to monetize its massive install base as iPhone sales slow.    

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