“Amid a backdrop of accelerating disruption within payments and the broader financial technology ecosystem, we believe SQ is a must-own over the long term as a proven innovator,” analyst Trevor Williams said as he assumed coverage of the San Francisco company.
“We see a long runway for share gains in [Square’s] Seller [unit], view Cash App as the leader within the crowded neo-bank category, and see potential for Afterpay synergies to be 12% accretive to pro forma gross profit by fiscal year 2025.”
Square ended at $249.16, up 4.2%. It has climbed 14% year to date amid enthusiasm for its expanding financial-services business model.
“As the pace of disruption within payments and the broader fintech ecosystem accelerates, ... companies with track records of product development and innovation (for example, scaling Square’s Cash App to about $2 billion in gross profit from about $50 million in 2017) offer the best protection against eventual obsolescence,” Williams said.
Those companies also are “most likely to outperform long term.”
His $300 price-target implies a 0.7 times growth-adjusted multiple on fiscal 2023 gross profit versus a peer average of 1.06 times, Williams said.
In August, Square unveiled the $29 billion takeover of Australia's Afterpay and stronger-than-expected earnings for the second quarter.
Profit totaled 40 cents a share, against a loss of 3 cents a share over the year-earlier period. The latest figure topped analysts’ forecast of 30 cents. Revenue more than doubled (up 143%) to $4.68 billion.