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Analyst Read: $SQ

Let’s look deeper into Square’s ($SQ) earnings.
(Piotr Swat)
(Piotr Swat)
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Let’s look deeper into Square’s ($SQ) earnings. Square blew out expectations, and its stock is up 8.5% this morning. The outperformance was driven by Bitcoin revenue growth and Cash App growth. 

Cash App is driving the show. Cash App Gross Profit grew a crazy 212% year-over-year. This was driven by stimulus, customer acquisition and cross-selling of Cash Card, Bitcoin, and Direct Deposit. New Cash App products like stock brokerage accelerated to ~2.5m customers in less than a year, and the company recently launched their Auto Invest product. They’re also seeing encouraging cohort dynamics, where customers that adopt 2+ products have ~3-4x more gross profit.

Square is also seeing 12.5% Seller revenue growth and is launching new Square Payroll products in the near future.

As of today, $SQ is trading at 21-22x forward Gross Profit and is definitely starting to flirt with the “expensive” territory. But I believe there are still near-term upsides that justify holding the stock even further. Cash App user growth and product expansion should continue to boom, especially if additional government stimulus is passed. Furthermore, Square is expanding into international markets for seller and user growth. The risks to monitor have to do with the overall economic recovery and additional lockdowns in the U.K., Canada, and the U.S. affecting both Cash App purchasing and Sellers staying in business.

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  1. Here in Australia, I see Square taking over the POS shares from the traditional banks. Every coffee shop, every store is using Square. So I believe in its Seller revenue growth potential. Meanwhile, Cashapp isn’t available down here. If it one day gets government approval and becomes available on the international app platforms, I believe there’s still plenty of upside long term for this stock.

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