What Analysts Think About Square's Post-Earnings Prospects

What Analysts Think About Square's Post-Earnings Prospects

Square Inc SQ took a huge 15% hit on Friday after the company reported lackluster second-quarter numbers and issued disappointing guidance.

Square reported second-quarter gross payment volume of $26.8 billion, slightly missing consensus analyst expectations of $26.9 billion. In addition, the company issued third-quarter EPS guidance of between 18 cents and 20 cents, below consensus estimates of 22 cents.

Square also announced a $410 million sale of its Caviar food delivery service to DoorDash.

Several Wall Street analysts have weighed in on Square stock following the report. Here’s a sampling of what they had to say.

Low-Quality Beat

Morgan Stanley analyst James Faucette said despite plenty of noise, very little has changed about Square’s longer-term outlook.

“Although SQ beat MS/Street estimates on adj. revenues and adj. EBITDA, we were somewhat disappointed by the notable deceleration in GPV growth this quarter, given strong US consumer spend trends reported by other Payments players (issuers, V/MA,etc),” Faucette wrote in a note.

Wedbush analyst Moshe Katri said transaction-based revenue growth is slowing, and Square’s second-quarter EPS beat was low-quality.

“While we continue to commend the company’s leading-edge, 2-sided consumer/ merchant monetization initiatives, SQ’s current valuation multiple continues to factor elevated expectations,” Katri said.

See Also: Analysts Discuss Libra's Impact On Facebook, Cryptocurrencies And The Payments Market

2020 Growth Opportunities

KeyBanc analyst Josh Beck said the Cash Card and Boost have Square well-positioned heading into 2020.

“While some may focus on the lack of a revenue raise, we think the + Cash App update (3.5M cards vs. our 2.9M estimate), along with growing Boost partner interest and Seller Card, set up 2020 well,” Beck wrote.

Canaccord Genuity analyst Michael Graham said the Caviar sale allows Square to focus more on its core business.

“The two companies will continue their existing partnerships, which include integration with Square for Restaurants and participation in the Cash Boost instant rewards program,” Graham said.

Ratings And Price Targets

  • Morgan Stanley has an Equal-Weight rating and $74 target.
  • Canaccord Genuity has a Buy rating and $88 target.
  • Wedbush has a Neutral rating and $75 target.
  • KeyBanc has an Overweight rating and $100 target.

Square's stock traded lower by 15.12% to $69 per share at time of publication.

Photo credit: Mybloodtypeiscoffee, via Wikimedia Commons

Posted In: Canaccord GenuityCash CardDoorDashJames FaucetteJosh BeckKeyBancMichael GrahamMorgan StanleyMoshe KatriWedbushAnalyst ColorEarningsNewsPrice TargetTop StoriesAnalyst Ratings