Square (SQ) is scheduled to report its first-quarter results after market close on Wednesday, May 1. For Square, the narrative to watch is undoubtedly revenue growth. The high-flying payments company just recently posted another quarter of strong revenue growth -- seventh quarter in a row. Square posted revenue of $464 million during the fourth quarter, a 64% increase year-over-year on an adjusted basis. Can Square keep growing its revenue so sharply?
For Q1, management guided for adjusted revenue between $472 million and $482 million, which implies 55% year-over-year growth based on the midpoint of this guidance range. For the full year, adjusted revenue is expected to reach between $2.22 billion and $2.25 billion, up from 2018's $1.59 billion.
Ahead of the print, Deutsche Bank analyst Bryan Keane maintains a Buy rating on SQ stock, with a $98 price target, which represents nearly 35% upside from where the stock is currently trading.
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Keane has a yearly average return of 20% and an 81% success rate. Keane has an average return of 62% when recommending SQ and is ranked #86 out of 5,194 analysts.
Keane is estimating Square to report Q1 revenue of $484m (+57.8% Y/Y,) and adjusted EPS of $0.09. The analyst believes “Square may outperform its [Q1 revenue] guidance by potentially ~300-400bps as it aggressively invests in its ecosystem.”
Growth of its ecosystem has been a focus of Square’s as it seeks to broaden itself from its original payment-processor product. Keane says “the company is tapping a broader swath of users as larger sellers self-onboard and use omnichannel solutions while the Cash App / card are attracting more than just the underbanked,” and is growing its market from business customers to consumers, as well.
On the Cash app, Keane says, "with +15mn monthly active users as of Dec 2018 (from +7m in Dec 2017), the Cash App and associated products (e.g. Cash Card, virtual card, Bitcoin, etc.) are keeping users in the ecosystem while also becoming a primary spending vehicle, quickly becoming a significant contributor to segment [revenue] growth.”
During last quarter’s earnings call, CEO Jack Dorsey highlighted its ecosystem as Square’s “core differentiator.” The expanded ecosystem helps businesses with a wide-range of services, including for loans, payroll and invoices. While the Square reader played an integral part in bringing customers to the service, the company is betting for sustained and recurring revenue through its ecosystem.
TipRanks points to analyst sentiment split between confidence and caution on Square shares. Out of 16 analysts polled in the last 3 months, 9 rate a Buy on SQ stock while 6 maintain a Hold. Taking under the analysts' expectations, is this stock overvalued or undervalued? Notably, the consensus average price target stands at $87.20, marking nearly 20% upside potential from current levels.
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