Wall Street Loves Square's Cash App Growth

Square Inc SQ gained 9% on Wednesday after the company reported huge jumps in Cash App customers and revenue.

Square released its second-quarter earnings a day early on Tuesday after they were leaked after the market close. Square reported adjusted EPS of 18 cents on $1.9 billion in revenue. Earnings exceeded consensus analyst estimates of a 5-cent loss, and revenue was up 64% from a year ago.

Square reported 30 million Cash App users, up from 26 million at the end of 2019. Cash App generated $1.2 billion in revenue and $281 million in gross profit in the quarter. Cash App bitcoin revenue was up 600% to $875 million.

Long-Term Opportunity: Rosenblatt Securities analyst Kenneth Hill said Square’s Cash App update highlights the size of the ecosystem’s long-term opportunity.

“SQ shares are up 119% YTD, and we see the 2Q20 update as supportive of that performance,” Hill wrote in a note.

KeyBanc analyst Josh Beck said triple-digit Cash App growth is consistent with his bullish thesis.

“Results came in materially ahead of expectations as Cash App revenue growth of 361% and gross profit growth of 167% contributed to subscription and services revenue of $346M vs. Street expectation of $287M, driven by an ecosystem of 30M MAUs (consistent with our expanding SAM thesis) and 7M cards (critical engagement/monetization/data product, in our view), consistent with our positive Cash App deep dive that indicated triple-digit 2Q volume growth,” Beck wrote.

Second-Half Challenges: Bank of America analyst Jason Kupferberg said the second quarter was terrific, but Square doesn’t have a clear catalyst for additional upside.

“Management acknowledged stimulus has been an important driver from April-July, and there could be some ‘normalization’ of growth (especially in Cash App) in 2H,” Kupfergerg wrote.

Deutsche Bank analyst Bryan Keane said 140% Cash Card revenue growth was particularly impressive.

“Although Seller rev growth was slightly below our upside model, due to Capital headwinds offset partially by PPP loan originations, growth handily beat our core expectations and consensus,” Keane wrote.

SQ Ratings And Price Targets

• Bank of America has an Underperform rating and $100 target.
• Deutsche Bank has a Buy rating.
• Rosenblatt Securities has a Buy rating and $136 target.
• KeyBanc has an Overweight rating and $140 target.

Square's stock traded around $149 at time of publication.

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