Square (NYSE:SQ) stock has taken a bit of a beating over the past year. The company’s shares are down over 33% and Wall Street is divided when it comes to the stock. About half of the analysts reviewing the stock gave it a “buy” rating and the other half recommend either holding or selling the shares. Some of this volatility is outside the company’s control, like when its CFO Sarah Friar left in late 2018.
But some of it was self-inflicted, like when the company delivered a lackluster earnings report and lowered its third-quarter guidance. Square also decided to sell its meal delivery service Caviar to DoorDash, which caught many investors off guard.
According to Wedbush analyst Moshi Katri, the next six to 12 months will be “noisy” as Square goes through a transition period. However, I believe SQ stock will eventually rebound for the following three reasons.
The Future of Cash App
The main reason Square let go of Caviar is to focus on its core business offerings. This includes the company’s popular Cash App. Square is currently testing out a stock trading platform within the Cash App. The end goal is to allow Square users to buy and trade stocks directly within the app. And according to Bloomberg, the company is looking into a feature that would allow users to trade completely for free.
If this pans out, it would be a huge advantage for Square, giving consumers another incentive to use the Cash App. But honestly, it doesn’t seem like most consumers need a lot of incentives. Cash App already has 15 million active users.
Diversified Business Model and SQ Stock
One of the advantages of investing in Square stock is the company’s diversified business model. Square offers a variety of services that are designed to replace the role of a traditional bank. And the company offers services designed for both individual users and businesses alike.
Square offers peer-to-peer lending, invoicing software, point-of-sale hardware, a payment gateway and even payroll services. And the company makes it easy for brand new businesses or entrepreneurs to begin accepting online payments right away.
Square Launches E-Commerce Platform
And finally, Square isn’t stopping with online payment software. The company is working on launching its own e-commerce platform. And in many ways, this is a natural fit for SQ stock.
Square already does business with many companies through its payment processing services. Now the company will offer these same businesses the option to sell products and services through its own digital storefront. This puts Square in competition with companies like Shopify (NYSE:SHOP) and Amazon (NASDAQ:AMZN).
Shares of Square are down from last year, and the company is predicting that things will get worse before they get better. But Square is clearly putting the foundation in place for future growth.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.