Square gets a street-high $330 price target from Deutsche Bank on Cash App stimulus potential

jack dorsey
Jack Dorsey Square’s Co-founder.

Square received a street-high $330 price target from Deutsche Bank on Wednesday ahead of the company’s February 23 earnings date.

Analysts at Deutsche Bank, led by Brian Keane, said Square may have been a “recovery play in 2020,” but the “bigger recovery story” is set to come in 2021.

Square is a financial services and mobile payments firm that was founded in 2009 by Jim McKelvey and Twitter’s Jack Dorsey. The company’s stock has risen more than 220% over the past year as its flagship product, Cash App, blossomed due in large part to stimulus checks and the stay-at-home audience.

Deutsche Bank’s Brian Keane said another round of stimulus checks might be a significant win for Cash App in a note to clients on Wednesday.

“Although benefits from the first round of stimulus have started to fade, Cash App should benefit from the second smaller round starting in 1Q21,” Keane said.

The analyst also said his team expects “Cash App to benefit from monetizing new users, cross-selling products across the platform, and expansion into new products” throughout the year, but sees gross profit growth falling.

While some analysts and investors have been worried about Cash App’s profit potential, Deutsche Bank analysts said they “expect margins” for the all-important business sector “to scale over time.”

Deutsche Bank analysts also noted the benefit Square’s stock brokerage products have had on the top line. The company added 2.5 million transacting customers since its launch less than a year ago as of the end of the third quarter. 

The record surge in the price of bitcoin has been “a boon” for Square’s revenue and gross profits as well.

The company made headlines back in 2017 when it started allowing cryptocurrency trading through its Cash App. And more recently Square bought $50 million worth of bitcoin in an investment that has already paid big dividends for the company.

Deutsche Bank’s Keane said he raised his fourth-quarter “Total Net Revenue growth” forecast to “~140% Y/Y primarily due to higher Bitcoin revenue.”

However, the analysts added that they are “lowering our Gross Profit growth from ~55% Y/Y to ~48% Y/Y due to the lower Seller volumes and Cash App Gross Profit growth.”

Deutche Bank is forecasting net revenues of $9.49 billion when Square reports earnings on Feb 23 vs. consensus estimates of $9.51 billion. And the firm expects net income of $118 million vs. a $94 million consensus estimate.

Square traded down 1.86% on Wednesday as of 3:44 PM ET, at $270.80, giving the company a market cap of $122.08 billion.

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Wedbush says Tesla’s bitcoin investment will spark further corporate adoption – and highlights 4 stocks already poised to gain from the crypto boom

Elon Musk
  • Tesla has paved the way for more corporations to head down the path to owning and accepting bitcoin, according to Wedbush. 
  • The firm says current bitcoin mania is not a “fad,” but the start of a new era of digital currency. 
  • PayPal, Square, Mastercard, and Visa could benefit from the crypto boom, Wedbush said.
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Tesla’s bitcoin bet could be a “game changer” for the digital currency and the broader adoption of blockchain technology over the coming years, according to Wedbush.

Given the still nascent and volatile nature around bitcoin, less than 5% of public companies will likely invest in bitcoin over the next twelve to eighteen months, but that could move “markedly higher” as more regulation and acceptance of the cryptocurrency takes hold in the future, a team of analysts said in a Monday note. 

Bitcoin reached a new high above $50,000 Tuesday morning, bringing its year-to-date gains to 74% in a sign of the growing acceptance of the digital currency.

According to Wedbush, the bitcoin mania is not simply a “fad,” but a sign of the broader digital currency and blockchain space growing.

Read more: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

“…We believe the trend of transactions, bitcoin investments, and blockchain driven initiatives could surge over the coming years as this bitcoin mania is not a fad in our opinion, but rather the start of a new age on the digital currency front,” said Wedbush. 

Also, Tesla’s announcement to begin accepting bitcoin as a form of payment could be a “paradigm changing move for the use of bitcoin from a transaction perspective.” 

This will bode well for payments companies PayPal and Square, said Wedbush. Both of those companies allow consumers to buy, hold, and sell cryptocurrencies which is resulting in higher frequency usage of their consumer-facing ecosystems. 

The crypto-boom could also be a “neutral to slight positive” for Visa and Mastercard, said Wedbush. Those two networks are gradually planning to accept central bank digital currencies and asset-backed currencies in payments transactions. Mastercard will start supporting certain cryptocurrencies directly on the network in 2021, which could open merchants up to new customers, the analysts added.

Also, Visa plans to launch a pilot crypto software program to help banks roll out bitcoin and cryptocurrency buying and trading services. 

Read more: UBS says bitcoin is a bubble and too volatile to diversify a portfolio, unlike gold – here’s why the bank says it could end up ‘worthless’

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