Macquarie Out Bullish On Square, Likes Cash App's Prospects

An upcoming marketing effort and momentum in the instant payment space from its Cash App could mean Square Inc SQ is set for a better 2020 than company officials are projecting, Macquarie said Tuesday.

The Analyst

Macquarie's Dan Dolev initiated coverage on Square with an Outperform rating and $105 price target.

The Thesis

The awareness of the Cash App relative to competitors, particularly PayPal Holdings Inc's PYPL Venmo, is growing, according to what people are searching for on the internet, Dolev said. With a boost from a coming marketing effort, there could be more than 5% upside to the company's 2020 guidance.

The bullish coverage follows strong gross payment volume growth in the third quarter and rising sales and marketing efficiency, which contribute to the positive outlook. Dolev also said that despite the planned increase in marketing spending next year, he still expects Square to meet or exceed margin targets.

Outlook Conservative

Dolev said while management guidance implies about 45% growth for the Cash App, as much as 65% growth might be possible as more potential customers hear from the marketing blitz about the competitor to Venmo and Zelle.

"Despite its success, we see an even brighter future for the Cash App amid signs of growing mind share across key Venmo strongholds," Dolev wrote. "Our analysis of Google Trends searches for 'Cash App' vs. 'Venmo' shows that Cash App is garnering increased attention in traditional Venmo strongholds like New York, California or Massachusetts."

Price Action

Square shares were up 0.7% on Tuesday, trading at $68.67.

Related Links:

4 Money Apps That Will Eliminate Cash

Why This Analyst Is Increasingly Convinced Of Venmo's Monetization Prospects

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