Citi analyst Peter Christiansen upgraded Square to Buy ahead of results, as he believes user acquisition spending indicates "stronger for longer" growth.
Square (SQ) is scheduled to report results of its third fiscal quarter after the market close on November 7, with a conference call scheduled for 5:00 pm EDT. What to watch for:
1.‘STRONGER FOR LONGER’ GROWTH: On Tuesday, Citi analyst Peter Christiansen upgraded Square to Buy from Neutral and raised his price target for the shares to $90 from $67. In addition to "robust" user acquisition spending, Square's planned 35% headquarter expansion signals confidence in continued platform growth, the analyst contended. Additionally, the analyst argued that the upcoming third quarter commentary on the overall health of the ecosystem, visibility into fiscal 2019, and progress on the CFO search "will be positive toward restoring momentum in the stock." Christiansen added that he has no reason to believe Square's CFO departure relates to a negative change in the company's forward prospects. After a deeper look into Square's investment spending/payback model, Christiansen lifted his 2019 adjusted revenue estimate by 8%, or 9 points above consensus expectations for 42% growth.
2. CFO DEPARTURE: Back in October 11, shares of Square were under pressure after the company said its Chief Financial Officer will step down to become the Chief Executive Officer of Nextdoor, a social network for neighborhoods founded in 2010. Analysts called the departure of Sarah Friar as a "major loss" for Square, contending that she was critical to the success of the company and its relationship with Wall Street firms.
3. OUTLOOK: During the company's last earnings call, Square said it sees third quarter earnings per share between 8c-10c, with consensus at 13c, and revenue for the quarter between $407M-$412M, with consensus at $384.51M. The company also said it expects third quarter adjusted EBITDA of $62M-$65M. Additionally, Square backed its FY18 earnings per share view of 42c-46c, while raising FY18 revenue view to $1.52B-$1.54B from $1.45B-$1.48B.
4. HIGHER TAXES: In a series of Tweets about San Francisco's Prop C last month, Square and Twitter (TWTR) CEO Jack Dorsey said in part: "I admit that while I come at this as a citizen first, there's an unfairness I see in my role of CEO of Square (this does not apply to Twitter). Companies like Square and Stripe would be taxed at a significantly larger total contribution than much larger companies like Salesforce [CRM]...Hypothetically Square could pay over $20M more in 2019, while Salesforce (4x bigger than Sq) pays less than $10M. Taxes would grow at rates multiple times our adj. revenue, which no company can sustain. Not an issue for Salesforce/Twitter, but unfair to Sq and fintech startups."
5. BITCOIN: Square has quietly shifted its bitcoin (BTC) service to trade through private brokers rather than public exchanges in a move that will make its bitcoin trading app a "more sophisticated" service, CNBC reported back in August, citing the company's latest quarterly report and cryptocurrency experts. By moving off public exchanges and trading through OTC channels, Square will be able to develop a faster, more secure platform that would create less price volatility when trading large amounts of bitcoin, according to experts.