Where The Action Is
Square (SQ: $250) continues to expand its foothold in the Financial Services landscape with a formidable ecosystem of apps and solutions, catered towards consumers and business owners, along with bold multi-billion dollar acquisitions in recent months. The company is rightly dubbed "the Google of Fintech."
From a shareholder perspective, the analogy is apt. The stock is a proven performer with shares rallying over 2,100% since 2016. We added it in 2017 at $17 and are up 14X. They have a strong management team that includes the likes of Jack Dorsey and Jim McKelvey, and importantly the company has a track record of successful execution and delivery, constantly outperforming its own projections.
The Price/Sales ratio has been dropping as revenues have skyrocketed of late. The market cap is $115 billion and last 12-months revenues are about $16 billion, giving it a very reasonable P/S of just 7. The stock remains poised for further growth, with Jefferies upgrading the stock to a Buy with a target of $300, representing a 20% upside from present levels. Our own Target is $335, with a Sell Price of $235. But if it goes to $235 or lower we would like it even more. Tough decisions we all have, don’t we!
The analyst cites Square’s 40 million highly-engaged daily active users (DAUs), along with the outperformance of its Cash App, which will drive nearly two-thirds of the company’s gross profits over the next five years. The company is also witnessing significant quarter-on-quarter improvements in unit economics as it reaches widespread adoption among merchants and consumers. Many analysts are predicting 80 million DAUs within two years.
Square’s Cash App also received favorable coverage from a semi-annual research into youth trends titled ‘Taking Stock With Teens’ by Piper Sandler, ranking second among payment apps, gaining steady market share against PayPal’s Venmo, which is currently ranked first.
All good background. But what we really want to emphasize today is the way Square's recent $29 billion announcement of the acquisition of AfterPay (AFTPY) could be a game-changing equation in the Fintech market, especially considering the popularity of Buy Now, Pay Later services among the youth.
Despite remaining flat during the past few quarters, Square has quietly transformed into a Forever Stock, operating in a segment that is still at its nascent stage and ripe for disruption, the company provides services only in a handful of countries, with many more markets opening up for such disruptive technologies.
With $5.6 billion in cash, debt of $6.1 billion, and significant free cash flows, the company has a robust balance sheet, and is rightly termed a ‘Must Own’ by any investor looking for exposure to the Fintech sector. We are BIG believers in this one.