Nine months after shares of Square (NYSE:SQ) hit an all-time high of $101.15, the stock has lost almost 29% of those gains and sits about $30 below the triple-digit zone. Now, about half way through the year, what’s it going to take for SQ stock to climb above a Benjamin by the end of 2019? Or, do we need to wait for that?
I wouldn’t count on Square stock hitting $100 in 2019. That said, I’d bet heavily on it hitting triple digits in 2020. Here’s why.
Cash App Gaining Ground
At the end of 2018, Square had 15 million monthly active customers, having doubled that the number from the end of 2017. Launched in 2013, Square CEO and co-founder Jack Dorsey sees its peer-to-peer payment service replacing your bank account to make bill payments and utilizing other financial services.
A new report from Nomura Instinet analyst Dan Dolev suggested that downloads of Square’s Cash App increased by 2.2 million in May, 500,000 higher than Venmo, the PayPal (NASDAQ:PYPL) market-leading peer-to-peer payment app.
Venmo is doing a good job monetizing its mobile payments app. In 2019, Venmo is expected to generate $300 million in revenue. If Cash App can continue to get more downloads than Venmo, at some point, it’s possible that Square can also successfully monetize its contender.
Square Capital Continues to Grow
In the final quarter of 2018, Square Capital, the company’s lending business that provides loans for users of Square’s payment processing services, facilitated 72,000 loans valued at $472 million (an average of $6,556 per loan). That was 55% higher than a year earlier.
Since it 2014 launch, Square Capital has facilitated more than $4.5 billion in loans to more than 250,000 merchants, many of them small businesses.
As Square continues to provide more services to its customers, offline and online, the company’s revenue will continue to grow at double-digit rates. By figuring out how to monetize new products faster — 51% of its Q4 2018 revenue was from products launched since 2014 — the faster it will deliver GAAP profits.
Larger Merchants Coming Onboard
While Square got its start helping small businesses process payments, the number of larger businesses using its services has grown substantially as it’s introduced new products such as Square Register, Terminal, and the Online store.
Square generates more than half the company’s total gross payment volume from businesses with more than $500,000 in annual volume. As the company continues to add merchants, large and small, Square is looking for ways to keep them happy.
One example is Square’s push into cryptocurrencies. The company recently hired former Google alum Steve Lee to be Square Crypto’s first hire.
“Broadly, we have this massive seller network of small, medium, and large businesses … and we would love to make it as fast and efficient and transactional as possible, and that includes looking at our seller base and our register,” CEO Jack Dorsey said recently. “You know, it’s not ‘if,’ it’s more of a ‘when’ … How do we make sure that we are getting the speed that we need and efficiency? … From a merchant perspective, and that’s something we really need to get right.”
As Square moves to become a one-stop shop for businesses, Square Crypto could be especially attractive to larger enterprises.
Bottom Line on SQ Stock
If SQ stock doesn’t make it to $100 by the end of 2020, it won’t be because of anything it’s doing in its business to scare investors away. It will be because we’ve gone into recession and Square’s smaller customers could be severely hurt by a downturn in the economy.
As for it hitting $100 in 2019, I’d say the odds are pretty low without a significant catalyst beyond the points mentioned above.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
