Square Analysts React To Q4 Earnings: 'Deceleration Somewhat Surprising'

Square Inc SQ shares dropped 6% despite the digital payment company reporting a fourth-quarter earnings beat on Tuesday afternoon.

Square reported fourth-quarter adjusted EPS of 32 cents on revenue of $3.16 billion. Both numbers topped consensus analyst estimates of 24 cents and $3.1 billion, respectively. Revenue was up 139.6% from a year ago.

Despite the impressive fourth-quarter numbers, Square said gross profits were up just 15% in January, suggesting a significant drop in growth in 2021. The company also reported buying $170 million in Bitcoin BTC/USD, which now represents about 5% of Square’s total cash position.

Related Link: Alibaba Analysts React To Earnings Beat: 'Strong Momentum Despite Increased Competition'

Deceleration Concerns: KeyBanc analyst Josh Beck said transactions and bitcoin revenue exceeded his expectations, while subscription and services growth slightly missed his targets.

"Encouragingly, multi-product Cash App users generate a 3-4x gross profit improvement, 130%+ retention, one-year payback, and a CAC of $5, supportive of our OW thesis on sustained hypergrowth prospects,” Beck wrote in a note.

Raymond James analyst John Davis said the January deceleration in Cash App growth was “somewhat surprising.”

“Despite better than expected Cash App gross profit growth in 4Q (162%) that included a significant acceleration in Dec (est ~180% vs. 140% in Nov and 160% in Oct), GP growth has surprisingly decelerated YTD as management called out 164% growth in Jan and 130% in Feb despite additional stimulus,” Davis said.

Cash App A Cash Cow: Rosenblatt Securities analyst Sean Horgan said Square is moving full steam ahead, with Cash App monthly active users topping 35 million.

“We expect shares to move higher driven by continued strength in Cash App customer acquisition and efficient monetization, all of which were on full display in 4Q,” Horgan wrote.

Needham analyst Mayank Tandon said Cash App continues to be a cash cow for Square.

“While SQ is withholding guidance during the pandemic, we believe the company will generate robust growth over the NT to MT, with NT benefits from fiscal stimulus serving as a tailwind for the Cash App business, and LT benefits from seller payment volumes/subscription revenues accelerating as business conditions improve,” Tandon wrote.

Credit Suisse analyst Timothy Chiodo said both the Cash App and Seller segments are building momentum heading into 2021.

“Both ecosystems delivered underlying momentum in terms of large new cohort additions (gross profit by annual cohort) in 2020 vs. 2019 (indicative of larger seller mix and underlying share gains for the Seller business),” Chiodo wrote.

Ratings And Price Targets: Rosenblatt has a Buy rating and $310 target.

Raymond James has an Underperform rating.

Needham has a Buy rating and $300 target.

KeyBanc has an Overweight rating and $275 target.

Credit Suisse has an Outperform rating and $270 target.

Square's stock trades around $241.58 per share at publication time.