Buy The Earnings Dip In Square Stock? 5 Analyst Weigh In

Square Inc SQ shares recovered a bit from a difficult period last week after the digital payments leader reported lackluster third-quarter earnings.

Last Thursday, Square reported an adjusted third-quarter EPS loss of 37 cents, in-line with analyst estimates. Square also reported revenue of $3.8 billion, well short of analyst estimates of $4.4 billion. Revenue was up 26.7% from a year ago.

Square reported a gross payment volume of $45.4 billion, beating analyst estimates of $44.7 billion. Gross profit was up 43% in the quarter, including a 48% increase in gross profit for its Seller ecosystem. Cash App gross profit was also up 33%.

Looking ahead to the fourth quarter, Square said Seller gross payment volume was up 24% in the month of October on a two-year CAGR basis, a slight improvement over the third quarter.

Square shares are down 6% in the past five trading sessions, but some Wall Street analysts have urged long-term investors to buy the earnings dip.

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Bullish Catalysts Coming: KeyBanc analyst Josh Beck said Square is giving investors hints about the company’s future focus.

“Innovation is increasingly morphing toward connecting the seller (SQ 1.0) and consumer (SQ 2.0) ecosystems, a strategy we refer to as Square 3.0,” Beck wrote.

Rosenblatt Securities analyst Sean Horgan said Square has many new initiatives in the works that could move the needle for the company.

“New features/functionality (e.g., BNPL, Cash App for teens, mobile check deposit) are likely to be additive to growth in the quarters ahead, but a shiny new product launch (i.e., Square's new DeFi business called ‘TBD’) may serve as the shot-in-the-arm necessary for Cash App to reaccelerate revenue growth,” Horgan wrote.

Needham analyst Mayank Tandon said Square appears well-positioned to generate impressive growth in coming quarters.

“We remain positive on the shares and recommend it for large-cap growth investors looking for exposure to digital business and consumer payments with strong growth prospects,” Tandon wrote.

Afterpay Integration Critical: Raymond James analyst John Davis said Square reported a rare miss, and its 2022 estimates are trending in the wrong direction.

“All in, although there wasn’t a lot to like in the 3Q print and numbers are headed lower across the board, we will remain on the sidelines as we believe the primary focus for investors will continue to be on the Afterpay deal, which is still expected to close in 1Q22,” Davis wrote.

SMBC analyst Andrew Bauch said there was nothing in Square’s report to deter long-term investors.

“Despite investor concerns around a potential Cash App deceleration against the most challenging 2020 comps due to stimulus, we believe SQ delivered admirable results and provided bullish investors enough fuel to remain optimistic that monetization trends continue to grind higher ahead of the potential close of the acquisition of Afterpay,” Bauch wrote.

Ratings And Price Targets:
KeyBanc has an Overweight rating and a $300 target.
Raymond James has a Market Perform rating.
Rosenblatt Securities has a Buy rating and a $360 target.
SMBC has an Outperform rating and a $300 target.
Needham has a Buy rating and a $315 target.

Photo: Courtesy of Square