You may have noticed the trademark little white cube on the bottom of someones phone at your local farmers market, swiping your card in something smaller than the size of a tic-tac box. You may have also seen the clean and crispy shiny white stand holding an iPad, and have it swung around to you so you can hastily jot down your signature and one-touch add a tip. If you haven’t paid too much attention before now, know that you were interacting with Square ($SQ).


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Square is a payments processor that has become so much more than just a credit card swipe to pay for baked goods at a bake sale, and has evolved into a small business management platform.

Multiple streams of revenue for Square

Initially launching with payment processing, and giving away free $10 readers, Square now boasts a whole suite of tools for small businesses, including:

  • Fully integrated bespoke Point of Sale hardware
  • Device add-ons including simple headphone jack and complete stand hardware
  • Contactless reader for Apple Pay / NFC payments
  • Payroll services ($29 / mo + $5 per employee
  • Flat fee borrowing and merchant processing loans
  • Square web services for eCommerce ($8 per month)
  • Appointment setting services ($50+ per month + 2.5% + $.10 per payment)
  • CRM Software for small businesses

All of these streams of revenue seem to be paying off for Square as well. On the Q2 earnings, Square’s earnings per share came in at $0.13, beating estimates by $0.01, and they had revenue of $385 million, up 60% year over year, and beating revenue estimates by $17.41 million.

So with all of these positives, why should you be looking for a market correction for Square?

Head to the return counter for Square shares

Outlook for Square doesn’t look too hot, at least in the short term. When analyzing the stock with our financial models, the 5 YR EBITDA Discounted Cash Flow model shows a 20% downside to the stock, with a price target of $53.67 from its last close of $66.86. This is coming from revenue, as well as growth velocity. It also seems that a rating from Credit Suisse may have an impact as well, with the bank putting only a 15% upside on a very volatile stock, and such a small upside would be a reason to sell. (If the upside was 100% +, then that is a reason to double down)

Buy the Square correction

With industry peers not really able to match Squares offering, as well as no real comparables company wise, we feel Square might be misjudged. They are bringing in more revenue than ever, and are starting to expand and really create an entire ecosystem around their platform, much like Apple has done. Once you are on it, it’s incredibly difficult to leave.

A fantastic entry point for this stock would be in the $55-$60 range, allowing you to get in on the downswing, and then hold tight for upswings once they start to beat estimates even more.

Gross payment volume rose 30% year over year, transaction based revenue was also up 30% year over year, a major profit center, subscription based revenue was up a massive 127% year over year, and the Cash App customers spent $250 million with Cash Card.

Take a seat, grab a latte and read your digital receipt, because once Square pulls back, the time to swipe up shares will be then.

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1 COMMENT

  1. Nice analysis – I would be interested to know how you heard about it. Were you looking at a mutual fund? or was it some sort of dump of all the stocks in US equity markets?

    Also, if you square is going to decline – why not recommend a short?

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