Jack Dorsey Sold Square Stock: Should You Do the Same?

On Jan. 4, Square (NYSE:SQ) chief executive officer Jack Dorsey converted 100,000 Class B shares into Class A shares and then sold the Square stock at an average price of $219.53. 

Why #Squarepocalypse Is No Real Concern to Square Stock
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The stock sale is part of planned sales by the billionaire co-founder. He began the weekly sales of 100,000 shares on Nov. 16. Since then, he’s sold 700,000 shares through his latest divestiture on Jan. 4. 

Estimating the total sales, he likely generated $160 million in pre-tax proceeds. Heck, even billionaires have bills to pay. 

If you’re thinking about selling based on these planned sales, don’t. Square’s got plenty of room to run in 2021. 

Here’s why.

Square Stock Hits $300

Square stock is already trading at more than $240. Since Jan. 1, the stock is up more than 10%.

And that’s on top of the 245% gains it achieved in 2020, something I had a suspicion would happen. Here’s what I wrote on Jan. 3, 2020:

Since Q3 2017, Square’s GPV [gross payment volume] 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. 

How’s it doing a year later on this front?

In the third quarter of 2020, sellers with annual GPV greater than $500,000 accounted for 30.6% of the $28.8 billion in seller GPV. That’s up 270 basis points from the previous year. Sellers with annual GPV between $125,000 and $500,000 were $8.7 billion in Q3 2020, or 10.1% higher than in the third quarter a year earlier.  These two groups accounted for 61% of seller GPV in Q3 2020, 500 basis points higher than the previous year. 

Sure, sellers with annual GPV less than $125,000 still accounted for 39% of overall seller GPV, but it shows larger companies’ acceptance rate, which is critical to its ongoing growth.

To get to $300 sooner in 2021, two things have to keep growing: Cash App, its finance app, and Square Capital, its lending platform.

Cash App Rocks

In my last article about Square in September, I encouraged readers to buy SQ on the dip. Having fallen almost 10% through the first six days of trading, I figured it was a rare opportunity to buy it at a lower price. It’s up 54% in less than four months.

One of the best reasons to own Square is its Cash App finance app that allows you to send money, spend money, save money, and even invest money. 

In Q3 2020, Cash App’s gross profit was $385 million, 212% higher than $123 million a year earlier. It’s one of the main reasons InvestorPlace’s Louis Navellier is also a believer.

“The pandemic — and a reluctance by consumers and retailers to handle cash — have accelerated the cashless trend. Square’s Cash app has benefited tremendously from that effect. However, it seems unlikely Cash app users will stop using it once the risk of COVID-19 is deemed over,” Navellier wrote on Dec. 28. 

“The episode has raised awareness about just how dirty money can be. Using an app is easier, and users don’t need to worry about losing money (or having it stolen). Square Cash app usage is here to stay.”

One more thing: Since launching Cash App’s stock brokerage service a year ago, it’s seen more than 2.5 million customers buy stock and those customers generate greater gross profits for the company. Its dollar-cost averaging service ought to add even more profitability to its investing platform.

Square Capital Rebounds

Due to Covid-19, Square stopped making loans to its merchants in March 2020. It resumed lending in July 2020. As a result, it facilitated 35,000 loans in the third quarter ended Sept. 30. These loans totaled $155 million, 72% less than a year earlier.   

While the data it pulls from its payment processing gives it a better idea of how a business is doing, management wisely slowed business. It’s likely to take a while for its lending to get back to pre-Covid levels in the near term. 

In March 2020, Square received conditional approval from the Federal  Deposit Insurance Corporation (FDIC) for deposit insurance related to its Industrial Loan Company (ILC) bank charter. Its subsidiary, Square Financial Services, is expected to launch in early 2021.

It’s now one step closer to becoming a digital bank for small businesses across this country. It will be exciting to see what unfolds in 2021. In the meantime, expect Square Capital to continue returning to more normal loan levels this year. 

I expect this to become a significant contributor to the company’s overall revenues in 2021 and beyond. 

Jack Dorsey might have sold 800,000 shares since mid-November, but he still owns more than 58 million Square shares, making him its largest shareholder by a country mile. 

No, you should not sell your Square stock unless you need the money. By the end of 2021, it ought to see $300.

It’s a long-term buy. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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