Square, Inc. ( NYSE:SQ ) is transforming into an integrated service that aims to take-over how businesses process payments, develop eCommerce and transfer funds.
They are providing effective and low cost software and equipment for business payment processing.
Square also owns the Cash App, allowing people to easily transfer money.
Recently, Square has been involved with the development of Weebly, a website builder with blended payment processing functionality backed by Square. This aims to give small businesses and entrepreneurs a better option to develop their own eCommerce store or platform. The concept looks great, as businesses use Square to create their own site, the payment processing will be handled from the company.
Now lets dive into the current performance of Square and see the direction of progress.
On last quarter’s results, revenues beat expectations by 51%, and quarterly sales of US$5.1b generated a statutory profit of US$0.08 - a pleasant surprise given that the analysts were forecasting a loss!
Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual.
Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Square after the latest results.
Following the latest results, Square's 34 analysts are now forecasting revenues of US$20.4b in 2021. This would be a substantial 55% improvement in sales compared to the last 12 months.
There's been no major changes to the average price target of US$274, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation.
It is always more revealing for investors to look at the range of estimates to see if there are any diverging opinions on the company's valuation.
Currently, the most bullish analyst prices Square at US$380 per share, while the most bearish puts it at US$89.
With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business.
It's clear from the latest estimates that Square's rate of growth is expected to accelerate meaningfully, with the forecast 79% annualized revenue growth to the end of 2021 noticeably faster than its historical growth of 42% per year, over the past five years.
By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 14% per year.
It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Square to grow faster than the wider industry.
Square is currently in the high growth phase of the business. The company is still integrating its business model and will have the opportunity to test out massive market adaptation of their current and new services in the future.
They seem to be making smart business decisions and powering through growth without excesses in risk.
Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry.
The statutory profit of US$0.08 per share is too volatile to provide a meaningful trend for investors.
With no real change to the average price target, the intrinsic value of the business has not undergone any major changes.
However, before you get too enthused, we've discovered 4 warning signs for Square (2 are potentially serious!) that you should be aware of.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.