Square’s Stock Rally Looks Pretty Well-Rounded

Wall Street has famously been called “both voting machine and weighing machine.”

Of course, voting is a bit of popularity contest, and as retail investors (and some institutional ones) crowd into a stock, they can quickly bid its price up — as is happening these days with payments processor Square.

Square’s shares have doubled since May, according to Bloomberg, and at $55 billion, the company’s market capitalization is eclipsing that of many traditional banks. Such a heady rise was illustrated by the stock’s roughly 5 percent gain on Monday, not to mention double-digit intraday percentage gains earlier in the session before a partial pullback.

SunTrust analyst Andrew Jeffrey also lifted his price target for the stock to a Wall Street high of $150 per share on Monday, up from a previous $83. He estimated that the firm could capture 20 percent of U.S. direct deposit accounts. As relayed by Zacks.com, Jeffrey said the “pandemic stimulus highlights Cash App’s unique functionality,” and that Square’s app might replace traditional checking accounts.

When market caps get neck and neck, that typically means investors are placing companies roughly side by side in terms of potential. In the great digital shift, we might expect that given predictions of payments that will be done speedily, seamlessly — and, of course, directly.

For Square, it seems like that only requires broadening its platform. To that end, Square said last month that it bought Verse, the Spanish mobile app startup that, as noted in this space previously, allows users to make payments instantly at no cost. Verse will operate independently, although the team is being folded into Square’s Cash App operations.

That’s where we might find the shift toward Wall Street as “weighing” machine. Or to use another Wall Street maxim, “Price is what you pay. Value is what you get.”

Monday’s closing price of $118.97 for class A shares of a company that continues to lose money shows that investors are betting that consumer behavior might have altered fundamentally through digital payments. So, apparently, has the business landscape.

Square also has a hand in the stimulus funding rounds that have dominated Capitol Hill. Last month, Square Capital LLC said it processed more than $820 million in forgiveness loans for the Small Business Administration’s Paycheck Protection Program (PPP).

Drilling down into core transactions, the firm garnered roughly 52 percent of its volume from sellers doing more than $125,000 in annualized gross payment volume, which was up 14 percent year over year to $25.7 billion.

Larger merchants (at that $125,000 threshold) have also been increasing their presence on the platform, Square management said on its latest earnings call. Separately, direct deposit (stored) volumes through Cash App were $1.3 billion in the latest quarter.

Chief Financial Officer Amrita Ahuja said during the earnings call that growth was strong in January and February before COVID-19 hit in March. Overall, gross payment volume (GPV) was down 39 percent year over year in the quarter’s final two weeks, but there have been stabilization signs more recently.

Card-present transactions fell in March by double-digit percentages (as much as 60 percent), but card-not-present transactions held steady.

The bottom line: For now, at least, Square’s share buoyancy seems to have legs.