Square Stock Cut to Sell on Concern About Seller Revenue

UBS analysts say Square's share price reflects expectations that seller revenue will speedily rebound. And it might not.
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Square  (SQ) - Get Report shares fell after UBS lowered its rating on the payment processing company to sell from neutral.

The analysts, led by Eric Wasserstrom, wrote in a report that the share price reflects anticipation of an accelerated rebound in seller revenue that probably won’t transpire, Bloomberg reports.

And given that Square focuses on small and medium businesses doing in-store sales, it’s difficult to discern how strong the recovery will be, they said. 

The coronavirus pandemic, of course, has eviscerated in-store sales.

Still, the strong performance of Square’s Cash App partially compensates for the decline of volume from merchants using Square, the analysts said.

Cash App enables users to transfer money to one another using a mobile-phone app.

Bank of America analysts, led by Jason Kupferberg, on Monday double-downgraded Square to underperform from buy, also expressing concern about the future of the payment platform's small-to-midsized business customers.

"The gradual (albeit uneven) reopening of various U.S. states is an incremental positive for brick-and-mortar merchants," the analysts wrote in a report.

"However, unlike with overall card spending volumes, we have yet to see the trough in terms of churn among small/midsized businesses."

Morningstar analyst Brett Horn offers a mixed take on Square, writing in a report that the Cash App business “looks poised to maintain its momentum.” But he thinks its shares are greatly overvalued, pegging their fair value at $49.

Square shares recently traded at $79.20, down 3.5%. The stock has slid 7% over the past three months, compared with a 21% rise for its competitor PayPal  (PYPL) - Get Report