Square (SQ) stock took off in 2020. Boosted by the rise of digital payments and the increasing adoption of its peer-to-peer Cash App, investors sent shares up by a massive 245% throughout the year.
Square’s success has been boosted by Bitcoin. Apart from the huge investment Square made last year by purchasing BTC worth $500 million (worth considerably more now), part of the Cash App’s appeal is for the easy way users can buy and sell Bitcoin.
With the leading cryptocurrency breaching new highs on an almost weekly basis recently, Square looks set to continue reaping the rewards. But, as is well known by now, Bitcoin is prone to going up a lot, but those periods are usually followed by bouts of serious pullbacks. So, what happens when the latest Bitcoin bubble bursts and what impact will the crash have on Square?
Mizuho analyst Dan Dolev has an answer.
“Our work shows that a dramatic positive inflection in user engagement helps ensure that SQ’s Bitcoin revenue should grow irrespective of Bitcoin price levels,” the 5-star analyst said. “We estimate that if Bitcoin reaches $100,000 by year-end, this could drive 9x growth in Bitcoin gross profit. However, if Bitcoin dropped to $10,000, its GP may still double, helped by growing user base & higher engagement.”
The numbers speak for themselves, says Dolev.
Bitcoin’s average quarterly price dropped from roughly $10,600 to $3,800 between 1Q18 and 1Q19. Nevertheless, during the same period, Cash App’s Bitcoin GP (gross profit) quadrupled from $0.2 million to $0.8 million as Bitcoin GP per user doubled to $0.5.
Again, between 3Q19 and 1Q20, Bitcoin’s average price declined from approximately $10,400 to $8,300, but overall GP from Bitcoin increased more than threefold from $2.1 million to $6.7 million, whilst GP per user grew from $0.4 to $1.2.
Overall, there is no change to Dolev’s rating or price target, which stays a Buy and $300, respectively. There’s upside of ~29%, should the figure be met over the next 12 months. (To watch Dolev’s track record, click here)
Square retains decent analyst support but not all are convinced it will surge higher. SQ’s Moderate Buy consensus rating is based on 20 Buys, 12 Holds and 2 Sells, while the $225.04 average price target suggests shares will slip 3% from current levels. (See SQ stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.