In what has become an increasingly familiar pattern over the past year, Square (SQ) delivered another strong display when it reported 4Q20 earnings on Tuesday.
Driven by surging Bitcoin demand, revenue increased by 141% year-over-year to reach $3.2 billion, beating Street estimates by $50 million. There was a beat on the bottom-line, too, with Non-GAAP EPS of $0.32 coming in ahead of the forecasts by $0.08.
Of course, the star of the show was the all-conquering Cash App whose profits skyrocketed by 162% from the same period last year.
However, investors appeared Square fatigued following the report’s release and sent shares down in the subsequent session.
But in timely Wall Street fashion, Mizuho analyst Dan Dolev tells investors to “buy the dip.”
“Was there anything wrong with 4Q?” Dolev asks. “Not at all, it simply lacked the element of surprise.” Has the story changed? He asks next, before answering, “With Cash App GP per active growing +70%, 2.5x bitcoin volumes per customer, accelerating Seller GP, and a 40% increase in product/S&M etc. in 2021, we believe momentum is strong.”
Furthermore, says the 5-star analyst, the near-term outlook looks promising. Although the Cash App’s growth slowed down from 164% in January to 130% in February, the analyst expects gross profit to accelerate throughout the quarter.
“Assuming the February two-year gross profit stack of +247% holds through March, this implies +135% Y/Y gross profit growth, which is ahead of February’s +130%,” Dolev said.
By the same logic, taking January and February’s “two-year stack” of roughly 45-48% growth, Q1 should see a 27% GP uptick, which is higher than the 13% growth in Q4.
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