Square (NYSE:SQ) delivered a 2019 return of 10%, approximately one-third the performance of the entire U.S. market. Worse still, since it hit an all-time high of $101.15 in September 2018, Square stock is down 38%.
Over the past 15 months, while the company’s financial picture has gotten stronger, SQ stock has sputtered badly, trading in a range between $60 and $80, nowhere near its all-time high.
To me, it’s inexplicable.
Buy SQ Stock on the Dip
In October 2018, I suggested that investors consider buying Square stock after it lost 25% of its value in just five days of trading. A buy on the dip bet and all that.
The cause of the dip: Former CFO Sarah Friar announced she was leaving to become CFO of Nextdoor, a social network for local neighborhoods.
I suggested CEO Jack Dorsey’s comments regarding Friar’s departure reflected those of someone in charge of a mature organization where its multiple revenue streams were in the hands of their own lead managers or CEOs. Dorsey felt neither he or Friar were expendable given the company’s organizational structure.
In the meantime, since Friar’s departure, Square has grown revenues by 44%, gross payment volume (GPV) by 25%, and adjusted EBITDA by 85%. Those are hardly the numbers of a slow-growth business.
Square Is Poised for Growth
InvestorPlace’s Laura Hoy recently reminded investors that the company is poised for growth, increasing its Cash App peer-to-peer payment revenue by 115% in the third quarter to $159 million, or 26% of its $602 million in adjusted revenue.
No wonder she called Cash App “one of Square’s most promising future bets.”
In October, I highlighted some of the reasons why I liked Cash App providing commission-free fractional trading to its 59.8 million potential users. One of the big ones is that Cash App users tend to be younger and in need of easy ways to save up for retirement. By delivering an ecosystem that solves problems for its users, Cash App’s revenues will become stickier than its peers, including Venmo, PayPal’s (NASDAQ:PYPL) peer-to-peer payment app.
On a different subject, Square’s Q3 2019 report showed that larger businesses are taking to Square’s payment processing products and services.
Since Q3 2017, Square’s GPV from sellers with an annual GPV of more than $500,000 grew 700 basis points to 27%. Meanwhile, those sellers with a yearly GPV of less than $125,000 dropped 700 basis points to 45%. At the same time, sellers with between $125,000 and $500,000 in GPV increased by 100 basis points to 28%.
Why is this important? It shows that the company’s revenue has become far more diversified; it now benefits from payment processing across businesses of all sizes.
2020 Will Be a Breakout Year for Square Stock
Late in 2019, CEO Jack Dorsey tweeted that he would spend as much as six months in Africa in 2020 to explore the fintech opportunities on the continent.
As InvestorPlace contributor Josh Enomoto pointed out, the business and investment community are split on Dorsey’s decision to abandon his biggest market in search of the next great marketplace for Square products.
However, Josh reminds readers that Africa has a very young population, most are unbanked, and two-thirds of Africans use mobile phones, a trifecta of growth for Square’s products and services.
As they say in hockey, you don’t go where the puck is; you go where it’s going to be. Digital payments in North America are commonplace. Not so much in Africa.
For this reason, I believe Dorsey’s African exploration should generate both positive PR for the company while also laying the groundwork for a significant future revenue stream. That should be enough to light a fire under SQ in 2020.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.