The Street Debates If Investors Should Buy The Dip In Square

Square Inc SQ reported a top- and bottom-line beat in its fourth-quarter results but investors found fault with certain metrics in the quarter and management's cautious guidance. Here is a summary of how some of the Street's top analysts reacted to the print and guidance.

Bloomberg: High Expectations

Square was likely up against high expectations, according to Bloomberg Intelligence's David Ritter. Expectations weren't met as the company showed a slight deceleration in revenue growth, which marks a reversal of consistent growth throughout 2018.

Ritter noted Square's report shows revenue is still growing north of 50 percent year-over-year and the company was even called out by JPMorgan Chase & Co. JPM CEO Jamie Dimon as being a winner in the payment space. The executive said Square isn't a winner because of its initial card reading hardware that plugs into a smartphone, but due to its evolution over time into a "full merchant services company."

KeyBanc: 'Fully Endorse' Upcoming Investments

Square's report is highlighted by strong subscription and services growth and the doubling of Square Cash monthly active users to 15 million, KeyBanc Capital Markets' Josh Beck said in a research note. As such, it would be premature to cool down the pace of investments in new products and services across omni-channel initiatives, financial services, software/payroll and international.

Longer-term EBITDA margins of 35 to 40 percent remain possible and investors should "fully endorse" a strategy to invest in the future, the analyst said.

Beck maintains an Overweight rating on Square with a price target lowered from $115 to $100.

Wedbush: Mixed Performance

Square deserves credit for building an ecosystem that can lead to better monetization but multiple metrics in the earnings report were mixed, Wedbush's Moshe Katri said.

Transaction-based revenue of $667.8 million fell short of consensus estimates, hardware sales of $18.1 million fell short of $18.5 million expected, gross payment volume growth slowed down from the prior quarter to $22.96 billion and fell short of the $23.05 billion expected.

Katri maintains at Neutral, with an unchanged $75 price target.

Guggenheim: Buy The Dip

Investors should consider buying weakness in Square's stock as the quarter flashed two compelling metrics for investors, Guggenheim Partners' Jeff Cantwell said in a research report.

First, the company expanded upmarket as larger sellers now account for 51 percent of GPV and grew by 39 percent year-over-year. These larger sellers generate more durable revenue streams for Square and typically take advantage of multiple products and services compared to small micro-merchants.

Second, users taking advantage of Square's Cash App card total 15 million and the continued expansion of the product line to include the Cash Card offers the company greater opportunities to monetize the user base over time.

Cantwell maintains at Buy ("Best Idea" pick), with a price target lowered from $96 to $92.

Price Action

Square's stock fell about 5 percent in after-hours trading, but ticked back up to trade around $78.95 per share time of publication.

Related Link:

Square's Cash App Is Winning Battle With Venmo, Says Nomura

Raymond James Downgrades Square, Sees Nearly 30% Downside Potential

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