by Ian Harvey
November 08, 2020
Square SQ shares rallied more than 14% on Friday after reporting a blowout third quarter on Thursday, posting huge profits; with earnings and revenue topping analyst estimates amid strong Cash App growth.
Stock Options Made Easy “Earnings Predictions Members” have made 671% potential profit on this trade, as of Friday, which was executed on Monday, November 02, 2020.
How high will the stock trade?
Our members have had a lot of success with options trades on Square SQ this year with returns of potential profits of 380%, 300%, 543% and 680%, and now 671%.
Square Inc.’s quarterly sales more than doubled, with the San Francisco-based payments company attributing the growth to its peer-to-peer payments app, Cash App, as one of the strong points of its business. The app, which lets users send money to friends, buy stocks and store money like a bank account, generated $2.07 billion in the quarter. Most of that revenue was from Bitcoin transactions, the company said.
Square SQ shares rose 5% in after-hours trading on Thursday. But, Friday saw the share price scream higher, up over 14% at one stage in the intra-day trading, to finally close at $198.08, adding on $22.85 or 13.04%.
Let’s Have A Look At The Recommendation…..
Option trade to consider: Buy the SQ NOV 20 2020 170.000 CALL at approximately $5.30 (up to $5.50). Entered the options trade at $4.15 – lower than recommended)
YOU NEED TO BE IN TO PROFIT!
“Payment processing and point-of-sale upstart Square SQ will report earnings after the market closes. The consensus earnings estimate is for $0.17 per share on revenue of $1.99 billion; but the Whisper number is higher at $0.23 per share.
Consensus estimates are for earnings to decline year-over-year by 34.62% with revenue increasing by 57.13%.
For the last reported quarter, it was expected that Square would post a loss of $0.07 per share when it actually produced earnings of $0.18, delivering a surprise of +357.14%.
Over the last four quarters, the company has beaten consensus EPS estimates three times.
Square has come a long way from the firm that only sold small smartphone and tablet-connected credit card readers geared toward small businesses and the self-employed.
Today, its portfolio includes a range of point-of-sale offerings, a broader payment infrastructure, including online, as well as debit cards, small business loans, peer to peer payments, bitcoin buying and more. The company’s Cash App competes against PayPal and JPMorgan Chase.
Our memberships have done extremely well with Square options trades this year – view the past results.
Last Friday Square shares dropped about 9% following a report from The Wall Street Journal that the Credit Karma is in talks to sell its tax preparation business to the mobile payments company. This provides us with a cheaper entry price and hopefully, this has now settled down somewhat!
Square SQ has been aggressively building out features for its Cash App, which now supports cryptocurrency and stock trading, as well as peer-to-peer (P2P) money transfers and Cash Card debit card payments.
Square's strategy revolves around developing an ecosystem for the app that can handle various use cases, boosting overall engagement in the process. How well a tax preparation service would theoretically integrate with Square's platform remains to be seen.
Short interest has decreased by 5.7% and overall earnings estimates have been revised higher since the company's last earnings release.
Many of Square’s clients such as coffee shops, restaurants, bars, and smaller brick-and-mortar businesses, have been negatively impacted by the coronavirus. Still, Square’s Q1 revenue jumped 44% to top estimates. And its second quarter results were even more impressive, as people opted to get their stimulus checks directly deposited in the Cash App.
SQ’s second quarter revenue soared 64%, which marked its strongest growth as a public firm and came despite the fact that gross payment volume dipped 15%. Cash App’s gross profit surged 167% to $281 million. The company said that the app had over 30 million monthly transacting active customers and over 7 million spending on its Cash Card.
Overall, Wall Street was happy to see Square SQ customers using more of its banking features. The company’s longer-term goal is to become the bank of the future. Plus, its seller business saw volumes return to growth in July. And its online gross payment volume jumped 50% to account for 25% of seller volume in the second quarter.
E-commerce sales are booming. While many transactions are made over a website or platform’s checkout process, Square can handle online sales.
Many of its customers are small- and medium-sized businesses. These companies and restaurants are adapting to the novel coronavirus and offering pickup and delivery options — even during some lockdowns.
Square SQ has exposure to bitcoin, the price of which is booming. Bitcoin is at its highest price since June 2019 and has had plenty of momentum lately. For Square, its Cash App (which bitcoin is a part of) is driving growth right now.
Square has crushed rival PayPal over the last three years, up over 370%, despite some ups and downs. And even though it has easily crushed both its industry and PYPL over the past several years, SQ trades at a discount to both at 8.3X vs. 9.3X forward 12-month sales.”
CONTACT US AND GET A SPECIAL PRICE ON OUR MEMBERSHIPS!
Analysts Thoughts After Earnings.....
At least 12 analysts increased their price targets on Square after the earnings report.
Citi Research analyst Peter Christiansen upgraded the stock to Buy from Neutral. He describes the results as a "conviction quarter" that proves its achieving strong Cash App engagement with the potential for future user growth acceleration as Square boosts marketing spending.
In addition, "Seller is making a solid comeback!" Christiansen wrote.
Guggenheim's Jeff Cantwell calls its Seller geographic diversification a positive and shows the payment platform can succeed outside of the U.S.
Square's past introductions also appear to be gaining traction. "Adoption of the Square Card, for example, has increased each quarter since it was launched, and in 3Q more than $250M was spent by Sellers using Square Card," Cantwell wrote.
Susquehanna's James Friedman lifts his price target on Square to $215 from $195 and maintains a positive rating. "Square is going back to the offensive playbook originally intended pre-Covid," he writes.
He points to an $800M-$850M campaign planned for after the holidays for Cash and Seller platforms. "Look for a flurry of product development, sales and marketing across the two ecosystems," Friedman added.
Rosenblatt Securities analyst Sean Horgan said Cash App may be on track for a profitable 2020. Rosenblatt has a Buy rating and $210 target.
“With shares up 180% YTD, we recognize SQ has had a strong run but we see improving Seller trends and the Cash App continuing on its path to a leading digital wallet, and (possibly) the first to post standalone profitability this year,” Horgan wrote in a note.
Needham analyst Myank Tandon said Cash App, improving Seller dynamics and reserve releases drove the big earnings beat. Needham has a Buy rating and $230 target.
“While the company is continuing to withhold guidance, we remain positive on the shares for aggressive growth investors looking for exposure to the positive trends driving growth in digital payments,” Tandon wrote.
KeyBanc analyst Josh Beck said even after stimulus programs ended, Cash App gross profit levels remained above first-quarter levels. KeyBanc has an Overweight rating and $215 target.
“Cash App once again delivered strong revenue
and gross profit growth, seeing nearly doubled growth in daily transacting
actives y/y and encouraging multi-product adoption (e.g., stock brokerage),
which can act as a gross profit multiplier,” Beck wrote.
Square plans to invest more aggressively in Cash App given its growth with consumers, said Chief Financial Officer Amrita Ahuja. “We did some new things in the third quarter related to paid marketing for Cash App that we want to lean into,”she said Thursday. The company is“scaling our [customer] support and other operations” around the app as more and more people use Cash App to make trades and do more than just send money to friends, Ahuja said.
Bitcoin transactions have also been a major boon for the company, generating $1.63 billion in revenue and $32 million in gross profit for the third quarter. That’s 11 times the revenue Square made with Bitcoin transactions in the period a year earlier, the company said in its shareholder letter.
Chief Executive Officer Jack Dorsey is a big believer in cryptocurrency, and Square bought $50 million worth of Bitcoin in October, calling the currency “an instrument of economic empowerment.”
People are doing a lot more of their financial transactions by electronic payments and that play to Square's strengths. Add in a bull market in bitcoin, and you've got the recipe for the kind of blowout quarter that Square SQ just reported; and a continued rally in share price very likely to continue.
Square SQ is growing in ways that should produce durable and growing revenue streams for years to come.
Will Square SQ Shares Continue To Rise?
Are Analysts Correct In Their Assumptions?
What Other Trades Are We Anticipating?
Do You Wish To Be Part Of This Action?
Join us here at Stock Options Made Easy, and find out our trades moving forward.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!