Square's Guidance Miss: Analysts Speak Up

Square Inc SQ is getting crushed Thursday following a disappointing third-quarter earnings report. Square beat analyst expectations for earnings and revenue, but its fourth-quarter guidance disappointed Wall Street.

The stock was down more than 9 percent to $74.79 at time of publication. Analysts remain mostly positive on Square in the long-term and generally see the sell-off as a buying opportunity for investors.

Here’s a sampling of what some analysts had to say about Square following the report.

Bull Thesis Preserved

Canaccord Genuity analyst Michael Graham said the third quarter was another demonstration of the long-term bull thesis for Square.

“Consistent with our recent upgrade, we remain constructive on the stock and believe the growth story continues to justify a premium valuation,” Graham wrote.

Wells Fargo analyst Timothy Willi said Square’s revenue growth remains impressive.

“Adjusted S&SB revenue grew by 126% on an organic basis, by our estimate, and exceptionally strong performance,” Willi wrote.

Cantor Fitzgerald analyst Joseph Foresi said investors can expect rapid revenue growth and long-term margin expansion to continue.

“We are attracted to the company’s increasing market penetration, end user growth and improving margin profile, driven by SG&A leverage and an increasing margin contribution from other services,” Foresi said.

Growing Pains

Susquehanna analyst James Friedman said Square’s future remains bright, but the company is clearly dealing with growing pains at the moment.

“Creation requires investment, valuation exceeds our Price Target, and we have no CFO,” Friedman wrote.

BTIG analyst Mark Palmer said core business metric were a bit on the light side.

“SQ reported 3Q18 transaction revenue of $655mm and gross payment volume of $22.5bn. Both of those figures represented year-over-year growth of 29% which would be strong for most companies, but with SQ shares trading at 47.3x FY20E EV/EBITDA we believe the ticks below the 30% level may have disappointed investors as reflected by the stock’s weakness during extended trading this afternoon,” Palmer wrote.

Product Launches

KeyBanc analyst Josh Beck said the Square payments platform has robust momentum.

“The impressive velocity of product launches unlocks new verticals (e.g., Square Terminal), software (e.g., Payroll app), and consumer (e.g., installments) opportunities,” Beck wrote.

Guggenheim analyst Jeff Cantwell said Square’s S&SB revenue growth is exceeding their expectations, a trend that may continue as it rolls out new products.

“We believe this should result in SQ continuing to generate high rates of firmwide revenue growth over time - particularly as the company begins to layer in new products like Square Terminal,” Cantwell wrote.

Ratings And Price Targets

• Canaccord Genuity has a Buy rating and $95 target.
• Susquehanna has a Neutral rating and $77 target.
• Wells Fargo has a Market Perform rating and $80 target.
• BTIG has a Sell rating and $30 target.
• KeyBanc has an Overweight rating and $115 target.
• Cantor Fitzgerald has an Overweight rating and $91 target.
• Guggenheim has a Buy rating and $96 target.

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