Square stock touched a new all-time on Thursday after analysts boosted their price targets en masse due to the company’s strong earnings report. Not only were the company’s fourth quarter results solid, but the company’s full-year EBITDA outlook was ahead of expectations, while its revenue guide for 2017 was in line with expectations.
Well, at least one of Jack Dorsey’s two companies is doing well.
Yarra Square Partners returned 19.5% net in 2020, outperforming its benchmark, the S&P 500, which returned 18.4% throughout the year. According to a copy of the firm's fourth-quarter and full-year letter to investors, which ValueWalk has been able to review, 2020 was a year of two halves for the investment manager. Q1 2021 hedge fund Read More
Square setting a track record
Goldman Sachs analyst James Schneider maintained his Buy rating and boosted his price target on Square stock from $15 to $17 per share. He assigned a higher multiple of 6.6 times 2017 estimated EV/sales, versus 6.4 times before.
The company posted adjusted revenue of $192 million, ahead of consensus at $188 million. Payments net revenue beat Schneider’s estimate, coming in at $142 million versus his expected $138 million. Software and Data Product sales missed, however, at $41 million versus his expected $43 million. Square Capital advances amounted to $248 million, while adjusted EBITDA was $30 million, greatly exceeding the consensus of $18 million.
Schneider feels that the company’s management is establishing a track record of sustained revenue growth and expanding margins. He feels that the fourth quarter was strong all the way across the board. Margins kept expanding and improved 1,600 basis points last year. Traction among large merchants is also still on track, with 43% of gross purchase volume was from merchants with volumes of over $125 million.
Square’s momentum continues
JPMorgan analyst Tien-tsin Huang and team bumped their price target for Square stock up by $1 to $16 per share and reiterated their Overweight rating. They note that take rates remained stable even amid the mix shift to larger sellers. The company continues to see payback periods of four to five quarters, and revenue retention rates remain solid, which they feel is “impressive” given the company’s scale.
They also liked the 81% increase in Subscription and Services revenue, which outpaced Square Capital’s loan origination growth of 68%. They feel this suggests that adoption of the company’s subscription services is strong.
Dorsey gave three main areas they will be focusing on this year, which are integration, automation and platforms. The JPMorgan team feels this is a “solid sign that Square is serious and confident that it can optimize/ monetize its ecosystem to reach longer-term EBITDA margin objectives of 35+%.”
Momentum already priced into Square stock
Morgan Stanley analyst James Faucette is less enthusiastic on the digital payments processor with his Equal-weight rating, although he did bump his price target for Square stock up to $14. He feels the shares already capture their “existing growth trajectory,” so he retained his rating. Before he will upgrade Square stock, he needs to see greater upside from new products or markets.
Faucette does have “high hopes” for the Square for Retail offering, which is the company’s first industry-specific product. It’s designed specifically for the huge $700 billion retail gross purchase volume market. He still thinks it’s too early to give the company credit for the new product, but he will be watching it.
His take on Dorsey’s “three areas of focus” is that increasing focus on automation and platforms might expand margins further. He doesn’t feel that this changes the long-term potential margins, but rather, he sees it as clarifying how the company is driving that margin expansion.
Shares of Square stock surged to a new record high of $17.75 during regular trading hours on Thursday.