KeyBanc's Bull, Bear Scenarios For Square's New Reward Program

Fintech and payments company Square Inc SQ introduced a "Cash Boost" reward program earlier this month that gives Square Cash debit card users an instant discount or reward. 

The Analyst

KeyBanc Capital Markets' Josh Beck maintain an Overweight rating on Square with an unchanged $100 price target.

The Thesis

Census and other macro data suggests restaurant and grocery spending represents 15% of after-tax consumer spending, Beck said in a Thursday note. (See his track record here.)

Among that group, the top 20 restaurant and grocery companies represent 40% of all spend, the analyst said. Assuming that Boost accounts for 1% of Cash Card spending, it results in a net yield of around 1.4% based on transaction and volume components, discount mix and other assumptions, he said. 

Under this bull case scenario, a 1.4% net yield would generate an extra $60 million in 2020 revenue, Beck said. 

If some assumptions are adjusted — such as a higher discount for coffee purchases — to generate a bear case scenario, Square will still see a net yield of around 0.5%, the analyst said. 

KeyBanc's analysis leaves the research firm "more positive" on the Cash Card's potential, Beck said.

Over the medium-term, Square's partner interest in loyalty benefits such as DoorDash could create even more upside to the Cash Card's contribution, the analyst said. 

Price Action

Square shares were down 0.82% at $71.59 at the close Friday. 

Related Links:

Is Square Still Hip? Street Weighs In After Outlook Disappoints

Analyst: Square Card Could Add $100M In Annual Revenue

Photo courtesy of Square.