Square is like 'Amazon or Google in their early days' (SQ)

pulse

January 19, 2018 4:56 PM

The company is rapidly expanding into new businesses and is growing its payments volume.

Square is set to take off, according to Nomura analyst Dan Dolev.
The company is rapidly expanding into new businesses
and is growing its payments volume.

When Wall Street compares one of Jack Dorsey's two public companies to Amazon and Google, you'd expect them to be talking about the one in the tech sector — Twitter. But on Friday, Nomura analyst Dan Dolev said that Square, Dorsey's payments company, is the one that resembles today's tech giants in their early days.

"In 10 years, Square is likely to be a very different company helped by accelerating share gains from payment peers and relentless disruption of services like payroll and HR," Dolev said in a note to clients.

Dolev said that Square's growth is hard to see now because of the method many Wall Street firms are using to evaluate the stock, similar to overlooked growth potential "analogous to Amazon or Google in their early days." Instead, Dolev performed his own discounted cash flow analysis, which he claims more clearly lays out the ability of Square to grow rapidly.

Square's business involves maximizing the number of payments it processes, and the company is rapidly expanding into new areas in order to grow its payments volume. Square is starting to grow the number of high-volume large sellers it partners with and is also moving into high-margin services like payroll and small-business loans.

Dolev thinks that these new initiatives will massively increase the number of payments Square processes by a long-term compound annual growth rate of 20%. Dolev also says that this growth will provide a 40% to 45% boost to earnings margins.

Square was trading about 4.84% higher on Friday after Dolev's note. Dolev rates the company a buy, with a price target of $64, a 42.8% increase over the company's current price.

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