Why I’m getting SQ calls for tonight’s earnings. via /r/wallstreetbets #stocks #wallstreetbets #investing

Why I’m getting SQ calls for tonight’s earnings.

Block, Inc., formerly Square, Inc., is an American financial services and digital payments company based in San Francisco, California. The company was founded in 2009 by Jack Dorsey (the twitter guy) and Jim McKelvey and launched its first platform in 2010.

Consider the fact that the company's stock has retreated about 51% in 2022, the stock has under-performed versus the S&P 500, which is down nearly 15%. Amid rising fears of a U.S. recession, one question is how resistant Square-parent Block (SQ) will be to a business downturn versus other digital payment companies.

Square Stock: Earnings Due Aug.4


Square on Jan. 31 closed the acquisition of Australia-based consumer lending startup Afterpay. The integration of Afterpay into financial segments and rise in popularity of beetcoin will lead to higher growth.

In its core business, Square stock aims to build a two-sided digital payments ecosystem, with products designed for both merchant sellers and consumer buyers. The Square Cash App helps individuals manage money, buy stocks and cryptocurrency, and more.

Cash App user growth and monetization is key to the outlook for SQ stock. Cash App growth soared during the coronavirus pandemic amid government economic stimulus and the rise of sex workers (digital e-girls). However, the bearish view is that Cash App growth will slow as the U.S. economy normalizes.

Square Stock: Cash App Growth Key

At the investor day, Square said the Cash App now has 46 million monthly active users, up from 44 million at the end of 2021. Some Cash App metrics were a bright spot when Square reported March-quarter earnings. The company reported earnings, revenue, operating profit and gross payment volume that missed analyst estimates, despite lowered expectations.

Square is diversifying on the merchant side. Merchants with less than $125,000 in annual payment volume represented only 34% of Square's gross payment volume mix in December, down from 57% in 2016, noted a UBS report.

Square and Twitter (TWTR) had the same CEO in Dorsey. But Dorsey resigned as Twitter CEO in late 2021, ending the executive-sharing arrangement. Under Dorsey, Square embraced cryptocurrency. At RBC Capital, analyst Daniel Perlin says corn is more than a consumer acquisition tool for SQ stock. Block in 2021 said it plans to build a system for mining. In addition, Square created a new business line to help developers build financial services products focused on corn.

Square Stock: Big Bet On Buy Now, Pay Later

In a recent note, Perlin said Block aims to build infrastructure that enables creepto-based commerce on its merchant platform.

"Digital coins like bee-tea-sea remains a small and volatile contributor today, but could develop into a more cohesive strategy and financial contributor longer-term," he wrote.

Announced Aug. 1, the Afterpay deal was originally valued at $29 billion. With the big drop in Block stock, the deal was valued at less than $15 billion at closing. Afterpay competes in the emerging "buy now, pay later" market that encroaches on credit card networks. Apple (AAPL) has emerged as a rival to Afterpay with another being Affirm Holdings (AFRM). Some investors questioned whether Block needed to buy a company in this sector as opposed to building up its own capabilities or partnering. Competition is heating up in the buy now, pay later market. Block's 2022 guidance includes an expected $1 billion in Afterpay operating expenses. UBS analyst Rayna Kumar in a report said the "risk profile" of Afterpay has changed amid rising interest rates and the potential of increased regulation.

Square stock surged in 2020 during the coronavirus outbreak as investors focused on the growth of its consumer Cash App. They shrugged off worries over Square stock exposure to small businesses and restaurants that might close because of the coronavirus pandemic.

Square Stock: Payments Ecosystem

For merchants, Square makes credit-card readers that plug into mobile devices. Its Square Capital division provides loans to sellers. While Square retains only 10% of Square Capital loans on its balance sheet, there's still a risk of defaults.

Prior to the Covid-19 outbreak, SQ stock analysts were divided on whether Square revenue growth would reaccelerate with margin improvement following a period of elevated investments. The Square Cash App, a peer-to-peer money-transfer service, competes with PayPal's Venmo, Zelle and others. Amid the coronavirus pandemic, Cash App emerged as a digital alternative to traditional banks. Consumers used the Cash App's direct-deposit feature to receive government stimulus payments, for example. But Cash App gross profit growth slowed over the summer, analysts say, as stimulus programs expired.

Square is testing a short-term borrowing feature for Cash App users. Square offers loans of $20 to $200. Cash App users are expected to pay pack the loans in four weeks, with interest. Also, the Cash App provides a stock trading feature. Cash App offers a debit card through a deal with Marqeta.

The Square Cash app, Square Capital and Instant Deposit all contribute to the company's subscription and services revenue. Analysts have said that one key for Square is cross-selling more services to its existing pool of merchants.

To broaden its consumer platform, Square plans to buy Credit Karma's tax business for $50 million in cash. It's a free service for consumers.

Block Stock: Moving Upmarket To Bigger Sellers

With roots in serving such micromerchants as food trucks and farm-stand vendors, Square has moved "upmarket," targeting larger businesses.

SQ stock ranks among the top 10 fintech companies. Bigger fintech companies include Visa (V), Mastercard (MA), PayPal, Fidelity National Information Services (FIS), Fiserv (FISV) and American Express (AXP).

In addition to selling credit-card readers, Square provides software for point-of-sale and back offices in order to manage inventory and other tasks.

Square recently focused on software products that can be used across many industries, such as invoicing, payroll and marketing. It also aims to integrate its payment tools into e-commerce platforms. Block on May 18 said it has acquired privately held GoParrot, a digital ordering and marketing platform for restaurants.

Instant Deposit Speeds Up Process

The company's Square Instant Deposit allows merchants to immediately receive payments instead of waiting a few days for settlement.

Meanwhile, Square Card is a business prepaid debit card issued in partnership with Sutton Bank to small business owners on the Square platform.

Square on March 2 said its Utah-based industrial bank has launched services to small businesses. Called Square Financial Services, the bank will offer loans and deposit accounts.

In trying to move upmarket, Square takes on Worldpay and Global Payments (GPN). Some fintech companies are merging, giving them greater scale vs. Square. The company recently sold Caviar, a food ordering and delivery service, to DoorDash for $410 million.

One key question as competition heats up is the outlook for the gross payment volume — total volume of sales in dollars generated by merchant customers — also known as GPV. It's a key financial metric for rivals like PayPal as well.

SQ Stock Fundamental Analysis

Square earnings for the first quarter were 18 cents per share on an adjusted basis, down 56% from the year-earlier period. Analysts had projected earnings of 20 cents a share.

Square said revenue dropped 21% to $3.96 billion, as Cash App transactions for digital cryptocurrency fell. Analysts had predicted revenue of $4.14 billion.

Financial analysts also view operating income as a key metric for SQ stock. Operating income came in at $1.29 billion, up 34%, versus estimates of $1.30 billion.

Gross payment volume from merchant customers rose 31% to $43.5 billion, versus estimates of $45.39 billion.

In a letter to shareholders, management said: "Afterpay contributed $92 million of gross profit in the months of February and March, with $46 million of gross profit recognized in each of Cash App and Square."

Excluding Afterpay, the company said "gross profit was $1.20 billion, up 25% year over year."

Block Stock Technical Analysis

After its disappointing initial public offering in November 2015, Square stock meandered. In June 2016, SQ stock still traded just above its initial public offering price of 9.

That soon changed. Square stock went on a big run starting in 2016. One analyst called Square the next FANG stock, joining the likes of Facebook, Amazon, Netflix and Alphabet's Google in stature.

Following its big run, Square stock fell more than 50% in late 2018 as many technology companies also crashed. Not many stocks roar back after a 50% correction. It takes time for them to digest gains and set up for another extended surge into new highs. SQ stock clawed back in 2019. Then shares surged in 2020 as investors focused on the growth of its consumer Cash App.

Submitted August 04, 2022 at 09:52PM by CallieCallie86
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