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Starbucks Makes Payments Easy

Zacks Equity Research

Starbucks Corporation (SBUX) recently announced its partnership with Square, a company that offers credit card readers for iPhone, iPad and Android devices, for enabling smooth credit and debit card transactions. The partnership will allow Starbucks customers to use Pay with Square, a mobile application, for making quick payments at about 7,000 Starbucks stores.

Starbucks is set to invest $25 million in this partnership and Starbucks chairman, president and CEO Howard Schultz will join Square’s board of directors. Customers can now make payment for their purchases from Starbucks stores using the Pay with Square mobile application in addition to the existing iPhone and Android Starbucks mobile payment applications.

Further Starbucks’ customers can easily access the local Square businesses, through the use of the Square Directory and make payments for their purchases using the Square application. Starbucks can also reach out to more customers through the Square Directory.

Pay with Square is intended to serve small businesses by providing them with easy and affordable card processing services, thus liberating them from hassles associated with payments in credit and debit cards.  As far as the Starbucks-Square partnership is concerned, it will significantly reduce the interchange fee associated with the use of debit and credit cards and enhance mobile payment services, thus encouraging business growth.

Our Recommendation

Starbucks carries a Zacks #4 Rank in the near term (Sell rating). Last month, Starbucks announced its fiscal third quarter 2012 results. Starbucks’ third quarter earnings of 43 cents per share missed both the Zacks Consensus Estimate of 45 cents as well as company expectations of 44 cents – 45 cents. The lower-than-expected results were due to soft consumer traffic trends in the U.S. in June and a weakening global consumer environment.

Following the first quarter miss, the company cut its outlook for the fourth quarter due to the economic downturn at large.  Further, poor sales in Europe due to depressed macroeconomic conditions and rising cost of commodities, especially coffee also concerns us. The weak third quarter results explain the bearish rank on the stock.

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