With a market capitalization just under $27 billion, Square (NYSE:SQ) is considered one of the primary innovators in the payments space.
Thanks to a slow 2019, which has seen the price of the stock rise just 11%, Square is also one of the biggest bargains in the space. It opened for trade Dec. 30 at $63.50, valued at just 6.3 times its expected $4.3 billion in revenue.
The slowing momentum makes Square stock one of my top speculations for 2020. This company looks ripe for takeover.
Jack Moves to Africa
CEO Jack Dorsey said recently he plans to spend half of the coming year in Africa. The move has divided investors and analysts, who ask who will be minding the store. Some consider the move reckless.
It won’t be reckless for Dorsey, who is always seeking the next opportunity and will find many grateful hosts in Africa ready to show it to him. Dorsey is a cryptocurrency enthusiast, and Africa is a hotbed of crypto innovation. The continent has dozens of unstable fiat currencies and moving between them is expensive. Giving people something more like the Euro could supercharge growth, especially in the digital space.
But Square, the company, may have few opportunities there. Jumia Technologies (NYSE:JMIA), hailed as the “Amazon.Com (NASDAQ:AMZN) of Africa” on its market debut in April, is down 75% from its IPO, battered by internal turmoil.
What About Square?
Square, meanwhile, faces both opportunities and problems.
Dorsey began the company with a one-price policy, designed for coffee shops and kiosks. But it recently changed its policy to focus on bigger tickets, alienating its existing base.
Square has sought to expand its niche by offering loans and accounting features. But not all small businessmen are entrepreneurs, even if they call themselves that. Most are just people trying to make a living.
Square’s top line continues to grow. Revenues are expected to be up 31% this year. But profits have proven elusive. Square had profits of 7 cents per share in its most recent quarter, but it’s still down 4 cents per share on the year, and the last several years have seen consistent losses.
Still, Square has some attractive technology, and solid prospects. Since the platform is relatively new, it can get money into merchant accounts quickly. Square knows how its customers are doing and can make quick decisions on loans. It also syncs with 21 different business apps, making accounting easy.
The Bottom Line on Square Stock
The rest of the payments industry has spent 2019 noisily consolidating to compete with Square. Companies participating in these mergers specifically cite Square as one of their motivators.
Given all that, and Dorsey’s evident lack of interest in the company he runs, it would be natural for Square itself to be on someone’s buy list. Priced at 10 times revenue, still cheaper than current rivals, Square could command a 33% premium on its Dec. 30 opening price of $63.50 per share.
Companies like Fidelity National Information Services (NYSE:FIS), Fiserv (NASDAQ:FISV), Mastercard (NYSE:MA) and Visa (NYSE:V) all have enough financial firepower to take out Square for stock. Once any company makes a move, a bidding war could send the price skyrocketing.
This could be one of the great takeover stories of 2020.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
