The biggest lesson from the digital transformation of business is that no industry is safe from disruptive technology. Major financial institutions are losing their merchant services clients, and some credit card companies are seeing their customer bases fall. Mobile payment solutions are storming the industry, driven by technology start-ups.
One of these is Square, Inc. (NYSE: SQ), a company founded by Jack Dorsey, who also founded Twitter (NYSE: TWTR). Though the company is less than 10 years old, it has revolutionized merchant services and mobile payments, leading to tremendous gains in value for shareholders.
Square clearly has momentum, but can it maintain its current rate of growth?
Square, Inc. Pros and Cons
Since the company was founded in 2009, the Square app has been downloaded more than 33.5 million times.
Individuals use Square technology to send and receive payments, exchanging funds with friends and family in addition to making payments to businesses.
Businesses of every size, including micro-businesses operated by home-based entrepreneurs, can use Square to accept credit cards. Options include keying in customer credit cards manually or using a small swipe reader that plugs into mobile devices. The reader is compatible with other mobile payment solutions, such as ApplePay by Apple (NASDAQ: AAPL).
Square has a variety of other products and services to give small businesses the same powerful tools that larger organizations enjoy. For example, companies can use Square (NYSE: SQ) to obtain financing, track sales, and monitor inventory.
Square Analytics makes it possible to gain critical financial insights based on the data that flows through the app, and Square Appointments seamlessly integrates business calendars with customer-facing software so that current and potential clients can schedule time.
Square Payroll manages the complex task of calculating employee pay, so that the entire process flows smoothly.
Just recently, Square (NYSE: SQ) tested out an unexpected service. The company purchased a mobile food delivery site. Square for Restaurants launched in May 2018, to great success.
Perhaps the most exciting development in Square’s lineup of services is its exploration of trading in Bitcoin. Each time the company takes a step forward in expanding cryptocurrency trading to customers, stock prices reflect investors’ enthusiasm for this minimally-explored opportunity.
A Brief History of Square by the Numbers
It is clear that Square’s strategic plan includes expansion by acquisition and diversification of products, as evidenced by the number and variety of companies it has purchased.
The five most recent include:
- Weebly – 4/26/18
- Entrees On-Trays – 1/25/18
- BookFresh – 2/26/14
- 80/20 – 10/1/12
- Viewfinder – 12/3/13
Other acquisitions include Storehouse, Kili, Caviar, and Fastbite, and the company has entered into a partnership with BigCommerce – a major player in the e-commerce space.
Two years ago, Square traded at around $12 per share. Eight months later, it had doubled. By this time last year, it was already at $48 per share.
In the past year alone, Square stock has increase by a shocking 247 percent, far surpassing its peers.
PayPal (NASDAQ: PYPL) rose an impressive 42 percent in the same period, while the S&P 500 grew just 17 percent.
Square Stock Analysts View
One of Square’s most notable days of trading occurred on September 25, 2018. Instinet Analyst Dan Dolev said, “Similar to FANG stocks that have disrupted traditional markets with massive global total addressable markets, Square’s fully cohesive solutions and rapid rate of innovation suggest that it is en route to disrupt the global payments ecosystem.”
In essence, Dolev said that Square is disrupting the payments sector in the same way that Facebook (NASDAQ: FB), Netflix (NASDAQ: NFLX), and Amazon (NASDAQ: AMZN) disrupted their respective industry landscapes.
His analysis included an increase in price target from $86 to $125, prompting a dramatic 10.8 percent increase in share prices. Of course, such increases aren’t entirely without precedent for Square. It had a similar boost back in February a year earlier.
Why Square Stock May Stumble Before Climbing Higher
Though analysts are invariably positive about Square, there are some who suggest caution. After all, you can’t expect the runaway growth to last forever.
These analysts indicate that Square has come too far too fast, as stock prices have increased much more quickly than revenues. It is possible – and even probable – that stock prices will plateau for a period so that earnings have a chance to catch up.
Analysts expect 2018 earnings to come in around $0.46, and 2019 earnings are predicted to be $0.74.
In terms of revenues, analysts predict approximately 1.57 billion in 2018 and 2.25 billion in 2019. By all indications, Square could hit the $100 price handle by next quarter.
In the next year, it is certainly possible to see the stock double again. That’s good news for those who have already invested, and it certainly appears positive for those planning to buy soon. Though increases may not happen as quickly as they have in the past two years, all indications are that future Square stock prices are destined to move higher long term.
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