Analysts React To Square Earnings: 'A Tale Of Two Ecosystems'

Square Inc SQ shares rocketed higher by 11% on Thursday after the company reported losses that more than doubled in the first quarter of 2020.

Square reported a first-quarter adjusted earnings per share loss of 24 cents, missing analyst expectations of a 13-cent profit. However, revenue of $1.38 billion exceeded consensus estimates of $1.29 billion.

Investors also likely took comfort in management comments on the earnings call suggesting volume growth rates have improved since mid-April.

Several analysts have weighed in on Square.

Divergent Businesses

Morgan Stanley analyst James Faucette said COVID-19 understandably has had more of a negative impact on the company’s Seller business than on Cash App.

“Reacceleration in merchant acquiring business is likely to take significant time, which in turn is likely to perpetuate the growth disparity between the merchant acquiring business (Seller business) and its alternative consumer bank (Cash App),” Faucette wrote in a note.

RBC Capital Markets analyst Daniel Perlin said Square’s earnings report told "a tale of two ecosystems."

“After experiencing a slight impact from COVID-19 in late March, Cash App rebounded strongly, while Seller GPV appears to be stable, with April showing a 39% y/y decline,” Perlin wrote.

Long-Term Outlook Unchanged

Bank of America analyst Jason Kupferberg said first-quarter numbers were mixed, but the underlying long-term Square bull thesis is intact.

“Cash App saw improved trends in March and April, reaching the largest number of net-new transacting active customers in April,” Kupferberg wrote.

Rosenblatt Securities analyst Kenneth Hill still expects a difficult second quarter despite improving trends.

“Valuation also remains elevated for the stock at ~76x our 2021 EPS (vs. peer avg. ~33x),” Hill wrote.

SQ Ratings And Price Targets

• Bank of America has a Buy rating and $72 target.
• Morgan Stanley has an Equal-Weight rating and $41 target.
• RBC Capital Markets has an Outperform rating and $74 target.
• Rosenblatt Securities has a Neutral rating and $67 target.

Square's stock traded around $75.71 at time of publication.

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