If you invested in Square Inc (NYSE:SQ) in 2020, congratulations. Your investment has certainly paid off. After I wrote last May that SQ would not just fully recover from the March market crash but continue to get stronger, it gained an additional 190% on the year. All told, after opening 2020 at $62.99 and closing the year at $217.64, Square stock gained nearly 246% in value over the course of the year. That’s a pretty impressive performance — and this isn’t even a vaccine stock!
Speaking of vaccines, the arrival of coronavirus vaccines has some investors worried. They look at companies like Square that benefited from some aspects for the pandemic and predict that with a vaccine, they will see their business slide.
I don’t think that will happen with Square. I’m not expecting to see a repeat of 2020’s showing, but I think the SQ growth story is far form over. So far in 2021, Square stock is up 6.4% and I doubt it’s done yet.
Online or In store, Sellers are Sellers
One of the big reasons I’m not worried about the return to a post-pandemic normal when it comes to Square is that sellers are sellers. By that I mean the small and medium businesses that form the core of Square’s payment processing service may have turned to online sales in the pandemic, but they also use Square hardware and payment services in their retail locations.
When vaccines are distributed and we can declare the pandemic over, that’s going to be nothing but good news for many of Square’s sellers. You’ll see festivals, craft shows and other events where Square’s smartphone card swipers have become ubiquitous start back up after been effectively cancelled for most of 2020. Small stores that use Square Readers may see online sales slip, but they’ll be welcoming customers back.
In addition, Seller profit was actually a modest part of the Square gains in 2020. In the company’s third quarter, seller gross profit was $409 million, up just 12% year-over-year. As you’ll see, that makes sellers significantly less important to Square’s fortunes than they were just a year ago.
CashApp Winning Converts and Growing in Importance
The big story for Square in 2020 was CashApp. The company’s peer-to-peer money transfer service experienced phenomenal growth through 2020. YoY profit for CashApp was up 115% in Q1, 167% in Q2, and 212% in Q3. The numbers? In Q3 2019, CashApp gross profit was roughly one third of that Square reported from sellers. By Q3 2020, CashApp gross profit was $385 million — within striking distance of seller gross profit.
CashApp didn’t just keep adding users even when the initial panic of the pandemic lockdowns ended. The users also became more engaged on the platform. Square says CashApp users who made at least one transaction daily nearly doubled YoY. User aren’t just sending cash. Square says:
… customers brought more funds into their accounts for products such as Cash Card, direct deposit, and stock brokerage
CashApp adoption is increasing, users are expanding into other Square services such as Cash Card, and profit for the division is rapidly increasing. At this rate, CashApp will soon be Square’s most profitable division. And that’s good news because cash was already on its way out before the pandemic. A return to normalcy makes it unlikely that CashApp users are going to abandon the service.
Bottom Line on Square Stock
Square stock was a high performance leader in 2020. It’s an A-rated stock in Portfolio Grader. Its business benefited from the pandemic, but I feel it’s at low risk of stagnating when vaccines bring a return to normalcy.
It’s off to a great start in 2021, with gains of over 9% already. If you have been thinking about adding SQ to your portfolio, the longer you wait the more expensive it’s likely to be.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
