In the days before the novel coronavirus emerged, it was easy to support the bullish case for Square (NYSE:SQ). To address the low-hanging fruit, the future of payments is obviously pointing toward the digital realm. Square’s multiple physical and digital payment platforms allowed entrepreneurs to get up and running. I appreciated SQ stock because the underlying company facilitated disruption. Essentially, small businesses could compete with their larger rivals on level ground when it came to payments processing.
However, it’s SQ stock that’s now facing disruption. And the results, despite a strong surge in momentum earlier this week, are not pretty. On a year-to-date basis, Square is still down by 19.5%. The ETFMG Prime Mobile Payments ETF (NYSEArca:IPAY), which includes Square stock as its tenth-biggest holding in a 31-stock portfolio, is down more than 24%.
SMB Barometer
As you know, the U.S. is reeling from a historic black swan event. In the first week since the coronavirus significantly impacted American businesses, 3.3 million workers filed for unemployment benefits. In the following week, that figure skyrocketed to 6.6 million.
If current trends hold — and really, why wouldn’t they? — we should see more pain ahead. According to National Federation of Independent Business survey, the outbreak has hurt more than three-quarters of small businesses. Considering that this survey was conducted on March 20, this percentage could rise more and with greater magnitude.
Let’s face it — small businesses represent the economic engine of America. They’re also the bread and butter for Square and by extension, lift or sink SQ stock.
Sadly, we’ll probably suffer prolonged pain because the U.S. government responded too late. Even back in early February, I utilized trend analysis to demonstrate that the coronavirus potentially has longer legs than other infectious diseases.
However, we live in a world where news is fake until proven otherwise.
SQ Stock: Relevant Despite the Crisis
That said, I’m not here to cry over spilled milk. We’re now dealing with the cards that have been handed to us. Later, we will have an investigation to determine culpability. For now, Americans must do whatever they can to help each other survive.
To that effect, I’m actually pleasantly surprised that Washington came together to sign an unprecedented $2 trillion stimulus package. Although it took some wrangling which I’m not happy about, at least our elected officials recognize the need to bail out the American people. Thus, most taxpayers should receive some relief in the next few weeks.
Naturally, this should have some positive impact for SQ stock. While furloughed and laid off workers will undoubtedly utilize the funds for necessities, most American workers still have employment. Among those fortunate ones, you’d expect a sizable number to share the love with small businesses.
Additionally, the stimulus package earmarks several billions for these entrepreneurs. Right now, it’s politically unpalatable for our elected officials to allow our economic engine to fail. Thus, if the present round of stimulus isn’t enough, it’s reasonable to assume the government will do more.
Also, let’s not forget that entrepreneurs are adapting to the new normal in droves. For instance, restaurants are now shifting their operations to take-out and delivery-only. But such transitions are much easier when you’re utilizing an intuitive payment platform like Square.
When you’re in a crisis situation like this, it’s all about offering the customer convenience. Indeed, for strained businesses dealing with an implosion of foot traffic, every dollar counts. Not having the proper and relevant payment options will unnecessarily hurt small businesses in the nearer term.
Organic Marketing Opportunity
In recent weeks, I’ve felt that it’s our civic duty to help small businesses. It saddens me to realize that many will not make it. Those who do will have likely done so because they could quickly adapt. Again, this is part of Square’s organic marketing message; their platforms facilitate flexibility.
Should the coronavirus’ economic impact last for longer than economists anticipate, it may change how cash-only businesses operate. With credit card payments, the customer can stretch their financial capacity. You and I both know that there will be much stretching involved.
But with cash, you either have it or you don’t. When we pass this health crisis, we will surely enter an economic one. Therefore, not providing your customers flexibility may be a huge mistake.
Fortunately, Square has a ready-made solution that’s intuitive and reasonable. Given our extraordinarily trying environment, I don’t think entrepreneurs can ignore this offer. Thus, I’m still long-term bullish on SQ stock. Just be ready for some volatility.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
