For centuries, cash was king among American consumers. However, times are changing. And one of the companies maneuvering to take advantage of a shift away from cash is Square (NYSE:SQ).
From 2017 through to the fall of 2018, Square stock had a remarkable run, before falling off a cliff to close out 2018. And 2019 has been a roller coaster for investors. After several runs at a recovery, SQ topped $82 in the fall, before being sunk again after reporting second-quarter earnings in August.
Since then, Square stock has bounced around between $56 and $66, leaving investors wondering what the future holds.
Between the start of 2017 and September 2018, SQ stock put together a run that saw its value increase 626%. From there, it plunged. By Dec. 24, it closed at $50.72, a 49% loss of value.
A lengthy list of issues worried investors. The company was taking on debt, revenue growth was slowing compared to its earlier pace and the trade war between the U.S. and China threatened consumer spending. Further, Shopify (NYSE:SHOP) introduced its own line of payment processing hardware in direct competition with Square.
Square is sitting above $67, after finally breaking above $66 earlier this week. But analysts remain cautious about the next 12 months. The Wall Street Journal’s analysts are pretty much split between “hold” and “buy” with a median 12-month price target of $72 for SQ. In other words, there’s not a lot of optimism for significant upside for Square stock in the near term.
However, in the long term, Square is poised to benefit as consumers increasingly adopt electronic payment.
Square Stock Stands to Benefit from a “Less Cash” Society
With various cryptocurrencies, the continued move toward online shopping, and the increasingly popular money transferring apps like Square’s Cash App and PayPal’s (NASDAQ:PYPL) Venmo, the concept of a cashless society has become a hot topic. Throw credit cards and debit cards in the mix, and paper money seems like an endangered species.
As of 2018, cash payment made up approximately 31% of U.S. consumer transactions. It’s far from dead, but considering that paper (in the form of cash or checks) accounted for 85% of consumer payments in 1990, there is a clear trend here.
Harvard Business School associate professor Shelle Santana collaborated with Square to analyze millions of transactions in an effort to determining whether the U.S. is moving toward becoming a truly cashless society. Her research was published in Harvard Business Review, where she concluded the likely outcome in the near future is not a cashless society, but instead a “less cash” society. Santana writes:
I predict that the tipping point will come as younger, tech-savvy generations integrate their own digital payment habits into their own businesses in the future. This, coupled with concerted efforts to build bridges across the banking and digital divides, will enable a big shift toward cashless.
Square has positioning itself to take full advantage of the trend as it develops, a strategy that has been reflected in the long-term growth of SQ stock. The company is getting in on every aspect of the “less cash” society with Cash App for mobile payments and money transfers between consumers, payment terminals for retailers and small business, and Square Online Store for e-commerce.
The less consumers use cash, the more likely they are to use a Square service. And the more likely they are to then use Square for payment processing when they launch their own business.
And if the “less cash” society does eventually transform into cashless? That possibility makes for a strong case for investing in Square stock now, especially when it continues to struggle.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.