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Square Stock Leaps After $29 Billion Afterpay Takeover, Solid Earnings Update

Square could narrow the gap with its larger rival, PayPal, following a surprise $29 billion takeover of Australia's Afterpay.

Square  (SQ) - Get Square, Inc. Class A Report shares surged higher Monday after the Twitter  (TWTR) - Get Twitter, Inc. Report-backed payments group unveiled a $29 billion takeover of Australia's Afterpay and pre-announced stronger-than-expected second quarter earnings. 

Square said Sunday it will pay A$126.21 each, or around $92.65 per share, for Afterpay in an all-stock deal that values the 'buy now; pay later' payments group at around $29 billion. The deal is expected to closed in early 2022, both groups said, and will start adding to Square' bottom line in the first year.   

Square also unveiled second quarter earnings of 40 cents per share, up from a loss of 3 cents per share over the same period last year and firmly ahead of the Street consensus forecast of 30 cents. Group revenues rose 143% from last year to $4.68 billion, the company said.

“Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles,” said CEO Jack Dorsey. “Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.”  

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Square shares were marked 8.2% higher in early trading Monday to change hands at $267.20 each. Afterpay shares ended the Australian trading session 18.77% higher at A$114.80 each.

Shares in Square's main payments rival, PayPal  (PYPL) - Get PayPal Holdings Inc Report , were marked 0.6% lower at $273.38 each. 

"We believe the transaction will help Square to catch up to emulating PayPal’s consumer and merchant ecosystem, provide Square with a boost in its efforts to serve larger merchants, and expand the company’s geographic footprint,' said JMP Securities analyst David Scharf. 

"At a high level, we believe Square’s acquisition of Afterpay marks an earlier-than-expected competitive challenge to PayPal, which has seen robust growth in its own (buy now; pay later) offerings, as we had not anticipated a “buy over build” approach," he added. The deal is also "incrementally negative for Alliance Data Systems  (ADS) - Get Alliance Data Systems Corporation Report, which expects the ramp-up of (buy now; pay later) receivables to be a significant growth driver in the near term."