Short Seller Andrew Left Says Square Is a 'Collection of Yawn Businesses'
Citron's Andrew Left says Square has traded higher for 'no reason.'

Square Inc. (SQ) is currying the favor of Wall Street for "no reason," said noted short seller Andrew Left of Citron Research.

In a note released this week, Left said Square stock has been "caught up" in the bitcoin and software as a service (SaaS) multiple expansion bubbles, rendering its nearly 40% year-to-date share price gains unwarranted.

Left's comments sent Square stock lower 0.48% by the closing bell Monday, April 30, after it fells  as much as 3.8% earlier in the trading session. Shares traded higher 0.61% to $47.63 Tuesday.

Citron sent a tweet out criticizing Square for being a "collection of yawn businesses" that has "Wall Street drunk on bitcoin nonsense." Citron added that Square's revenue is growing considerably slower than that of Facebook Inc. (FB) .

$SQ Short term tgt $30 started as innovative pymt co. - now just another processor. 15x rev growing slower than $FB. Collection of yawn businesses. WallSt drunk on Bitcoin nonsense, SQ-Cash to BTC trading has been insignificant. Even w/ hyper growth still 40% too rich

— Citron Research (@CitronResearch) April 30, 2018

Square, which is run by Twitter Inc. (TWTR) co-founder Jack Dorsey, launched bitcoin trading in late January for most of the users on its Square Cash mobile payments application. When Square announced the bitcoin play, the cryptocurrency was coming off highs near $20,000 in late 2017. On Tuesday, bitcoin traded just below $9,000 on most exchanges.

"It went up last quarter because everyone was asking about crypto," Left told TheStreet. "Everyone was in crypto world."

But people are simply not using the Square Cash app to buy and sell cryptocurrencies, Left posited. "It's a payments company. Let's keep it in perspective what it is."

In the accompanying research note, Citron said, "SQ got caught in bitcoin hype and poor retail investors are being fooled because it has nothing to do with bitcoin. They don't even have a license for people to buy [bitcoin] in [New York] and it's less than 1% of the company's revenue. Retail investors should understand this."

Citron continued in its thesis, stating, "SQ has been hiding a bunch of low multiple, subscale businesses in its 'software and services' revenue which has caused the stock's EV/sales multiple to re-rate from 10x to 14x so far year to date with the rest of SaaS companies. But, SQ isn't an SaaS business!"

Source: Andrew Left/Citron Research
Source: Andrew Left/Citron Research

If investors are looking to get exposure in the payments and fintech space, they're better suited to invest in shares of Apple Inc. (AAPL) , which has free options to use its in-house Apple Pay payments system, Left said.

Citron's short-term target of $30 implies about a 36% downside for the stock from its opening price Tuesday morning. Left said that target could come to fruition in about 12 months, depending on how the broader market moves. Square stock has gained about 36% year-to-date and is higher about 159% in the last 12 months.

According to FactSet data, 50% of analysts rate Square stock as a buy or overweight, while 41% rate it hold and 9% underweight or sell. The average analyst target price ss $48.73 with a long-term growth rate of 57.7%.

Left said that among Square's five businesses, none are worth a value of 15 times revenue. Peers with similar business segments are trading at far smaller multiples, with PayPal Holdings Inc. (PYPL) at six times revenue and Lending Club Corp. (LC)  at one times revenue, Citron said.

While Citron's Left may not be popular in his opinion on Square at present, he has long been a well-known short-seller. Left was among the first skeptics of Valeant Pharmaceuticals International Inc. (VRX) in 2015, when he was early to the game in calling into question Valeant's relationship with its distributors.

Several attempts from TheStreet to reach Square for a comment were unanswered.

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