Square Surges to Record High With ‘Super App’ in Focus

(Bloomberg) -- Square Inc. rallied 11% in Friday morning trading, reaching a record high after quarterly results beat expectations. Citi upgraded the payments stock to buy, while others flagged the potential for the firm to develop a “super app” to serve a broad base of customer financial needs.

Square shares stood out as other financial services firms, big bank shares and PayPal Holdings Inc. traded lower with U.S. stocks unwinding some of this week’s surge with the presidential election count continuing. Square has soared 211% so far this year, while PayPal has climbed 86%, as digital payments growth accelerated as the pandemic unfolded.

Here’s a sample of the latest commentary:

Citi, Peter Christiansen

• Christiansen raised Square to buy from neutral and lifted his price target to $215 from $185, calling the result a “conviction quarter.”
• He said he’d been reluctant to chase Square on fears that ‌government stimulus tailwinds would fade, but instead learned that there was a “solid retention of second-quarter gains,” plus he flagged Cash App’s accelerating new user growth and expanding engagement.
• He now sees an “upside narrative” with another round of government stimulus, which he called “free marketing for monetizeable products,” along with new products, international expansion and potential M&A.

Guggenheim, Jeff Cantwell

• It was a “dream quarter for Square,” Cantwell wrote, with gross profit that beat his estimate by 10%, driven by Cash App strength and a faster-than-expected recovery in Seller.
• Cantwell added that CEO Jack Dorsey’s “forays into bitcoin and equity investing via Cash App are proving to be masterstrokes for the company as those features are driving significant Cash App user engagement, and monetization.”
• He suggested Dorsey should build Cash App into a “super app,” like China’s Alipay, noting that Cash App now has nearly 10% of the U.S. population as monthly users and offers most of the financial services consumers need, including debit, person-to-person and stock brokerage.
• Neutral

Morgan Stanley, James Faucette

• Square’s results showed the firm has “more time (and money) to dream the dream,” Faucette wrote
• He estimates that about 85% of current Cash App revenue is tied to services like instant deposit and the Cash App debit card, which are vulnerable to eventual regulatory and legislative changes, but he now sees “that reckoning further in the future,” which gives Square more time to build its brand, and for investors to “dream of an eventual financial super app.”
  • Plus, he added that Cash Apps user demographics favor it versus competitors, as it serves more unbanked or underbanked customers than other firm who have fewer free service alternatives available to them
• Faucette wrote that he was reviewing his estimates and price target; rated shares equal-weight with a target of $44.

MoffettNathanson, Lisa Ellis

• Square’s results signal the firm is capitalizing on an unexpected surge in new business formation to capture market share, Ellis wrote.
• Buy, price target $210.

KBW, Steven Kwok

• Square reported a solid quarter with accelerating top-line growth and kept strengthening its product offerings, which should lead to higher customer engagement, Kwok wrote.
• At the same time, he noted Square has benefited from stimulus and unemployment programs, making for tougher comparisons ahead if there’s no additional stimulus, and called valuation fairly full.
• Market perform, target $186.

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