What’s the Impact of Economic Reopening on Square’s Performance?

On November 5th, 2020, Square Inc. (NYSE: SQ), a mobile payment giant, announced a significant increase in its total revenue in its 2020 Q3 earning results, owing to the revenue growth of mobile app Cash App. As a result, on the following November 6th, its stock price surged by 13%. Meanwhile, on November 9th and 10th, Square’s stock price plummeted 13% in total following Pfizer’s announcement of the preliminary results of the Phase 3 trial of the COVID-19 vaccine.

According to some reports, Square’s strong performance until 2020 Q3 was said to be owing to the Cash App’s revenue growth in the remote environment due to the COVID-19 pandemic, but Watanabe & Brothers’ Investment has different opinions.

First, according to the Square’s announcement, the Cash App revenue in 2020 Q3 was brought by Bitcoin-related revenue’s drastic growth owing to the federal government’s stimulus program and unemployment benefits, in addition to the long-term growing trend of Bitcoin. We believe that growth of Bitcoin-related revenue is attributable to growth of revenue related to direct investment in Bitcoin, not to revenue related to remittance using Bitcoin that is sensitive to remote environments.

In addition, Square’s excellent financial performance was already observed in 2019 Q4 earning results, and the Cash App’s growth rate is slowing down due to the COVID-19 pandemic.

A graph showing growth of cash app revenue. 0.18 for 2019 Q3, 2.62 for 2019 Q4, -0.52 for 2020 Q1, 1.27 for 2020 Q2, and 0.73 for 2020 Q3.
Fig. 1 Growth rate of Cash App revenue after 2019 Q2 (QoQ)

Furthermore, some reports have asserted that stock value was diluted due to issuance of a large amount of convertible senior notes. However, the issuance of the convertible senior notes was announced in 2020 Q3 earning results, and had been factored into the stock price on November 6th. Since total amount of the convertible senior notes accounts for only 1.2% of Square’s total market value, we believe that its impact on the stock price in the future will be limited.

We believe that the plunge in its stock price earlier this week was caused by short-term investors to secure profits for COVID-19 related stocks, and made capital flow into stocks that were adversely affected by the COVID-19 pandemic. Watanabe & Brothers’ Investment expects that the Square’s long-term uptrend will remain unchanged.

Square, Inc. (NYSE: SQ) stock chart

Important Notice 

  1. Watanabe & Brothers’ Investment is holding shares of Square Inc. 
  2. This report is provided solely for informational purpose and not intended for the purpose of soliciting investment in, or as a recommendation to purchase or sell any specific products. 
  3. Any opinions or statements expressed in this report are based on the author’s personal and subjective views, and are not the official views of the organization to which the author belongs.  In addition, although we have done our best efforts in making accurate assessments on the original financial statements, we cannot guarantee any complete accuracy of this report. We do not guarantee either that any future forecasts referred to in this report will certainly be realized. Investment in listed stocks, ETFs, etc. should be carried out under the responsibility of each investor, and even if the investor who read this report suffers a loss due to investment activities, Watanabe & Brothers’  Investment is not responsible for any liability.
  4. This report was originally prepared in English, and translated into the other languages with plugin utilizing Google Translation API. We hereby notify that the translations are provided only for the sake of reference, and any opinions or statements in this report should be interpreted in original English. We ask any investors reading this report to refer to the original financial statements issued by the company.

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