Square: Color on Quarter
--> SQ down 17% premarket just below support at the $11 level.
- Wedbush downgrades to Underperform; tgt to $9 from $11. They believe that Square is rapidly growing a business that may never reach peer (or guided) profitability, which will become apparent as growth slows over the next couple of years on competition and saturation. They believe upcoming lockup expiration (5-17) will provide the catalyst. They expect Square's growth to decelerate over the next couple of years as it gets boxed in by intensified competition from PYPL Here, INTU, SaaS competitors and traditional acquirers. SQ is selling at Wal-Mart prices with Neiman Marcus cost structure. Unlikely SQ gets acquired.
- Mizuho notes the co executed almost flawlessly on the core business, with strength in transaction revenue, solid take rates, and strong hardware sales. But the Software & Data segment came slightly below their expectations due to supply constraints with Square Capital. As the firm adds more lenders, this should help fulfill the solid demand. Their core thesis remains intact - Square should drive out-sized growth and margins through software over time, and they believe that the firmcould be a take out candidate given its unique focus around SMBs.
- Compass Point's thesis is simple: SQ's growth story is unusual for publicly traded FinTech and genuinely compelling—and the brand, platform, and secular exposure are positives. Despite those positives, the large move up since mid-February leaves little room for error and keeps them sidelined on the shares. Admittedly, their view is colored by their recent sector experiences, as most high-growth FinTech names could not sustain high multiples for an extended period after going public—even if their absolute and relative growth held up well. With the shares now trading at 166.0x 2017 P/E and 207.3x EV/EBITDA, the large delta between GAAP and non-GAAP results, and likely near-term secondary offerings, they believe a better entry point will emerge.
- RBC believes the quarter (a) was above expectations on a revenue basis and generally in line for EBITDA; (b) supported their thesis that Square's integrated solutions position the co to benefit from ongoing card acceptance penetration at smaller merchants as well increasing its attractiveness to larger merchants; but (c) may not have met heightened investor expectations going into the quarter; $15 tgt.