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Square Inc. remains one of this year's biggest technology enthusiasts, but shares have recently taken a back seat given the economic concerns and the impending departure of the company's highly visible financial director.
This puts further pressure on the company's earnings report for the third quarter, which is expected Wednesday after the market closes. Square
SQ + 3.07%
Stocks are down 22% from their highs at the end of September and investors will be reassured about the strength of the company's credit business and the transition that will take place when CFO Sarah Friar steps down at the end. of the year. .
Investors worried about a possible economic downturn are worried for Square, because small businesses – the core of Square's clientele – are considered particularly vulnerable during downturns. In addition to processing payments for small businesses, Square also loans them, exposing the company to some credit risk. It recently announced an extension of this credit program, which will provide consumer loans for some major purchases.
Do not miss: Square shares win after Citi upgrade
Square Capital, the segment that facilitates these loans, is a growing area of Square's business, but it is also hotly debated on Wall Street. The company said business lending posed little risk on the balance sheet, but management would likely face more questions about it in the Square earnings conference call.
This call will be the latest to present Friar, who announced earlier this fall that she will leave the company at the end of the year to become CEO of Nextdoor Inc., a social network. for neighborhoods. Friar was hailed by an analyst as the financial director of the "rock star". She is considered one of the driving forces behind Square's recent successful initiatives, not least because CEO Jack Dorsey spends half of his time dealing with Twitter Inc.
tWTR, + 1.18%
, the other company that he directs.
"We think that replacing Sarah is not possible, especially given her early entry into Square," SunTrust analyst Robinson Humphrey, Andrew Jeffrey, wrote last month. He saw Friar's role as "a bridge between the unbridled enthusiasm of R & D and the [return on investment]Jeffrey, who assigns a target of $ 74 under the title as pending, said Friar was more of a Square CEO or operations manager than a CFO.
Analysts are likely to put pressure on Dorsey about the transition plan, the search for the CFO and the qualities Mr. Square is most interested in, while looking for signs of sustained momentum in business. high-margin services of society.
See also: The fight to reduce your purchases in milliseconds
Deutsche Bank analyst Bryan Keane expects Mr Friar to remain in office until the end of the year and to prepare preliminary forecasts for 2019. He anticipates adjusted product growth of 40% to 43%. It awards the action a purchase with a price target of $ 98.
James Faucette Morgan Stanley will also closely follow the comments on next year.
"We think Square could see more movements in stocks after profits than most payment names (most other than First Data Corp.
FDC, + 1.79%
and PayPal Holdings Inc.
PYPL, + 0.76%
we have seen the post-results movements dictated by wider market movements), the ultimate trajectory of the stock being probably determined by the comments around the widening of the margin for 2019, "writes Faucette, who awards an equal price to $ 75.
What to expect
Earnings: Square, along with his latest earnings report, said he expects earnings per share of between 8 and 10 cents a share. Analysts surveyed by FactSet expect Square to earn an adjusted net profit of 11 cents per share for the third quarter, up from 7 cents a year ago. According to Estimize, which uses estimates from hedge funds, academics and others, the average projection provides adjusted earnings of 13 cents per share.
Returned: Analysts followed by FactSet expect a turnover of $ 863.4 million in the third quarter, while the average projection on Estimize is $ 872 million. Square generated $ 585.2 million a year earlier. The company had earnings of $ 840 to $ 860 million in its latest letter to shareholders.
The FactSet consensus forecasts adjusted revenues of $ 414 million, net of transaction costs and bitcoins.
BTCUSD, + 1.39%
trading costs. Square's outlook included adjusted revenues of $ 407 million to $ 412 million, up from $ 257.1 million a year earlier.
Movement of stock: Shares rose after eight of the company's last 10 earnings reports. The stock has gained 109% since the beginning of the year, while the S & P 500 index
SPX, + 0.63%
gained 6%.
Of the 36 analysts monitored by FactSet who cover Square, 15 have buy ratings on the stock, 18 have conservation ratings and three sell ratings. The average target price is $ 83.65, 8% higher than current levels.
What else to watch for
Square's Cash product will likely remain one of the priorities for the current quarter. Management can rely on user efforts and monetization, including instant deposits, cash debit cards and bitcoin trading.
The company could also develop Friar's remarks at the September conference, during which she suggested that the Cash app could eventually take on more banking functions.
"Whatever you do today with a bank account, you should turn to the Cash app to start imitating more and more," Friar said during the Commerce Code event . Analysts can ask the company for more information on these plans or to detail Cash's long-term objectives.
Read: How can artificial intelligence replace credit ratings and change the way we get loans?
Friar also spoke in September about Square's goal of attracting "the world's largest companies" to its platform. The move upmarket has been part of Square's strategy so far, and investors will pay particular attention to the segment of its business that comes from vendors realizing a gross payment volume of more than $ 125,000 per year. Half of Square's business came from these merchants in the last quarter, the company said, up from previous periods.
The company recently introduced a new terminal product that executives believe could help move upmarket, and management could share their thoughts on the terminal's early progress.
The different services offered by Square will also be interesting for investors. The various underwriting companies appear to be the "biggest contributor to the rise" to Faucette's expectations for an adjusted income of $ 411 million, "as was the case in the last three quarterly reports".
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