Square Shares: Should You Buy Them After 7% Spike?

Author: Tim Phillips

Date: November 23, 2024

Square Inc (NYSE: SQ) saw its stock price pop by 7% on Tuesday as the digital payments platform announced new instant payment services for its payroll customers.

Tim’s Take:

Square is known as a tech-forward provider of payment solutions for small businesses and consumers in the US. These include point-of-sale (POS) terminals that allow merchants to process payments via smartphone as well as payroll solutions for businesses.

The company also boasts its Cash App, a wildly-popular mobile payments service that allows users to send and receive money instantly. In its latest quarter, Square had 30 million users on Cash App.

The latest announcement from Square is a positive development for the fast-growing fintech firm. With the new On-Demand Pay service, Square will allow customers’ employees to transfer up to US$200 of their earned wages (whenever they need them) to the Cash App for free.

This won’t impact employers’ payroll processes as Square Payroll will automatically adjust the employee’s earnings.

Constructing a contactless payments ecosystem

It’s a classic example of Square strengthening its unique ecosystem in the digital payments and solutions space. According to Square, there are over 80 million hourly workers across the US, with many facing cash flow constraints.

This will also only reinforce the network effect of Cash App, which has gained traction on its ease of use and zero-fee transfers.

Even though the company’s Gross Payment Volume (GPV) fell in its latest quarter – down 15% year-on-year – this is likely a result of the Covid-19 hit to small and medium businesses (SMBs).

This has been more than made up for by growth in its total net revenue (up 70% year-on-year to US$1.92 billion). Then there’s the much sought-after subscription and services-based revenue, which climbed 38% year-on-year to US$346 million.

With a market cap of only around US$68 billion, in contrast to payments competitors such as PayPal Holdings Inc (NASDAQ: PAYPL) (US$218 billion), Visa Inc (NYSE: V) (US$438 billion) and MasterCard Inc (NYSE: MA) (US$339 billion), the growth potential of Square is huge.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Square Inc and PayPal Holdings Inc.

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