Investing in Square today is like buying JPMorgan in 1871 as the payment company’s Cash App realizes its growth potential, Mizuho says

Stock trader
Peter Tuchman, right, works among fellow traders at a post on the floor of the New York Stock Exchange, Wednesday, March 4, 2020.

  • Buying shares of Square today is like investing in JPMorgan at its founding in 1871, Mizuho said in a note on Thursday.
  • Mizuho believes Square’s Cash App will become the ultimate neo-bank and money center bank of the future.
  • The firm rates Square as a “Buy” with a $380 price target, representing potential upside of 59%.
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Square’s Cash App has so much upside potential that buying shares in the fintech company today is anagolous to investing in JPMorgan at its founding in 1871, Mizuho said in a note on Thursday.

“We believe Cash App may be en route to becoming the ultimate neo-bank and the money center bank of the future,” Mizuho said.

The firm sees a visible path for Cash App products to more than quintuple its average revenue per user to $200, and estimates the money sending app can capture a large portion of the US bank account total addressable market of 400 to 500 million accounts, according to the note.

Mizuho estimates that Square’s Cash App currently has between 30 and 40 million users, and that legacy banks like JPMorgan and Wells Fargo generate average revenue per user between $400 and $700, implying lots of upside potential for Square’s growth trajectory.

“With vast potential upside to average revenue per user and users, we believe Cash App’s gross profit could see 4x-8x growth over the coming years,” Mizuho explained, adding that it views Cash App as the “ultimate challenger bank.”

The product fronts Mizuho expects Square to tackle (and dominate) over the coming years includes retail crypto and stock trading, buy-now-pay-later, insurance, mortgage and auto loans, and tax services, among others, according to the note.

While the comparison between Square and JPMorgan in 1871 makes for a good headline, it’s worth noting that the predecessor to America’s largest bank didn’t go public until 1942.

Mizuho reiterated its “Buy” rating on Square and set a price target of $380, representing potential upside of 59% from Wednesday’s close. Shares of Square were down about 1% in Thursday trades, and are up 8% year-to-date.

Square's Cash App analysis
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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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