Square parent Block (SQ) has put Cash App banking services at the center of investor attention. But the direction of the merchant business of SQ stock also remains key to future performance.

Industry Insights, we’re counting down to 2024 with new investment themes and strategies. Blackrock U.S.’ Jay Jacobs discusses the role big tech incorporating artificial intelligence will play in the markets. We also break down how potential interest rate cuts will influence investors.” vid-name=”From Artificial Intelligence To Interest Rate Cuts, Here’s How Investors Can Win Big In 2024″ vid-cat=”Industry Insights” vid-date=”12/22/2023″ vid-date-tmsp=”1703245977″ vid-image=”https://www.investors.com/wp-content/uploads/2023/12/vUZ3ScDt-640×360.jpg” vid-authors=”MEREDITH HEYMAN”>
X

In its core businesses, Square stock aims to build a two-sided digital payments ecosystem, with products designed for both merchant sellers and consumer buyers.

As of the market open on May 1, Square stock was down 5% this year. First quarter earnings for SQ stock are due May 2.

Square Stock: Cash App Growth

For digital payment processor Block, the growth trajectory of Square’s consumer Cash App is one issue. There’s also cryptocurrency Bitcoin and the Afterpay acquisition.

Also, Square faces growing competition on many fronts. Further, Block in 2023 replaced the head of its merchant Square business, Alyssa Henry, with Block and Twitter founder Jack Dorsey.

The Square Cash App helps individuals manage money, buy stocks and cryptocurrency, and more. Block aims to bridge the Cash App and merchant ecosystems with consumer financing services from Afterpay. Buy now, pay later firm Afterpay competes with Affirm Holdings (AFRM). It’s evolving into a neo bank.

The Square Cash App, a peer-to-peer money-transfer service, competes with PayPal’s Venmo, Zelle and others.

As of Dec. 31, the Cash App card had reached 23 million monthly active users, with 2 million Cash App deposit monthly active users.

“Management sees Cash App Card as a conduit by which existing customers can engage more fully with Cash App banking services,” said Macquarie analyst Paul Golding in a report. “New banking features and products will also be used as incentive — new features introduced recently include free overdraft coverage, a 4.5% savings yield capability for direct deposit users, credit building tools, spending insights, and subscription management tools.”

Golding added: “Block is also looking to close the offerings gap with more traditional features provided by brick-and-mortar institutions, like wire transfers, check deposits, and bill pay. And on the credit front, Block thinks it can differentiate itself from other platforms, both digital and brick-and-mortar competitors, by integrating Cash App Card and Afterpay — essentially a synthetic credit card leveraging point-of-sale lending.”

Block Stock: Bitcoin Products

In late 2021, Square changed its name to Block, while retaining the ticker SQ. Meanwhile, the move reflected the company’s commitment to blockchain technology, which underpins cryptocurrency.

Block has aimed to build infrastructure that enables bitcoin-based commerce on its merchant platform. In addition, Square created a new business line to help developers build financial services products focused on Bitcoin.

In January, Square said its Bitcoin digital wallet was available for Cash App users in 95 countries.

Amid the name change, the company retains the Square brand for merchants that use its point-of-sale technology and services.

Also, some investors fear potential weakness in Square’s point-of-sale business amid growing competitive pressures from Toast (TOST) in restaurants and Fiserv‘s (FISV) Clover unit generally.

SQ Stock: Afterpay Acquisition

Square and Marqeta (MQ) on Aug. 8 said they have renewed their transaction services agreement for Cash App and Afterpay.

In July, Bloomberg reported that Block is suing Visa (V) and Mastercard (MA) on antitrust grounds, alleging that both credit card networks are overcharging U.S. merchants through high cost interchange and merchant location fees.

In the event a U.S. recession eventually hits, one question is how resistant Square will be to a business downturn. The relatively low income levels of Square’s customer base is one factor for investors to consider if the U.S. economy weakens, analysts say.

In a move to boost its Cash App business, Square in early 2022 closed the acquisition of Australia-based consumer lending startup Afterpay. “Buy now, pay later” (BNPL) companies such as Afterpay compete with credit card networks.

In another deal, Square acquired a majority stake in Jay-Z’s Tidal music streaming service for $297 million in cash and stock.

Block Stock: Competition Heats Up

In 2023, Square management outlined a new long-term investment framework, which will put the company on the road to higher quality earnings under generally accepted accounting principles, often known as GAAP.

One bright spot: Square holds $5 billion on its balance sheet. In addition,  Square stock uses a dual class structure of common stock, which gives insiders more voting power.

With multiple products, SQ stock faces stiff competition in both consumer financial apps and the small business market. Rivals include PayPal Holdings (PYPL), First Data‘s (FDC) Clover unit, Shopify (SHOP), merchant acquirers, and well-funded startup Stripe.

For merchants, Square makes credit-card readers that plug into mobile devices. Its Square Capital division provides loans to sellers.

With roots in serving such micro-merchants as food trucks and farm-stand vendors, Square has moved “upmarket,” targeting larger businesses.

In addition to selling credit-card readers, Square provides software for point-of-sale and back offices in order to manage inventory and other tasks.

Square recently focused on software products that can be used across many industries, such as invoicing, payroll and marketing. It also aims to integrate its payment tools into e-commerce platforms.

SQ Stock Fundamental Analysis

Square earnings for the period ended Dec. 31 were 45 cents per share on an adjusted basis, up 109% from the year-earlier period. Analysts had projected earnings of 58 cents a share.

Also, Square said net revenue came in at $5.77 billion, including Cash App transactions for bitcoin. SQ stock analysts had predicted revenue of $5.69 billion.

Financial analysts also view gross profit as a key metric for SQ stock. Gross profit rose 22% to $2.03 billion, edging by estimates of $1.97 billion.

Cost-cutting boosted earnings before interest, taxes, depreciation and amortization, a key metric known as EBITDA. It jumped 28% to $562 million versus estimates of $447.3 million.

In Q4, gross payment volume from the transactions of merchant customers rose 10% to $57.8 billion, missing estimates of $58.50 billion.

For the first quarter of 2024, Square said it expects EBITDA of $580 million. Analysts had projected March-ending quarter EBITDA of $515 million.

For 2024, Square forecast gross profit of at least $8.65 billion versus consensus at $8.55 billion. Square said it expects adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of at least $2.65 billion versus consensus at $2.4 billion.

Is Square Stock A Buy Right Now?

SQ stock plunged about 61% in 2022. Meanwhile, Square stock gained 23% in 2023. The Nasdaq composite surged 43%.

Square’s Relative Strength Rating stands at 88 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an 80 or better RS Rating.

The relative strength line, the blue line in the chart above, compares a stock’s price performance with that of the S&P 500. A downward-trending RS line tells you the stock is underperforming the general market.

Block stock holds an IBD Composite Rating of 96 out of a best possible 99.

SQ stock, meanwhile, holds an Accumulation/Distribution Rating of C-minus. The rating runs from a best-possible A+ to a worst-possible E. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading.

As of May 1, SQ stock holds an entry point of 80.29 from a cup base. Square stock trades well below its 50-day moving average.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.

YOU MAY ALSO LIKE:

IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today

Learn How To Time The Market With IBD’s ETF Market Strategy

Get Free IBD Newsletters: Market Prep | Tech Report | How To Invest

IBD Live: A New Tool For Daily Stock Market Analysis

Want To Get Quick Profits And Avoid Big Losses? Try SwingTrader