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Square: Post-Pandemic Reality


  • COVID-19 will have a significant negative impact on Square's business for at least this year (due to social distancing, and pauses in go-to-market investments, non-essential hiring and certain discretionary expenses).
  • However, a large long-term market opportunity remains, and Square has a strong market position fueled by innovation and execution.
  • Square trades at a significant valuation discount relative to peers Shopify and Stripe, and presents an attractive opportunity for investors willing and able to absorb near-term volatility.

Square (NYSE:SQ), founded in 2009, is a merchant service aggregator and provides management tools as well as financing to small- and medium-sized consumer-focused businesses. The company also offers a peer to peer payment app geared towards individuals. Square has a strong competitive position in a large and growing addressable market. However, there is a current valuation disconnect as a result of near-term COVID-19 related disruption. In our view, this provides long-term investors an attractive opportunity with a positive risk-reward.


Square was founded by Jack Dorsey and Jim McKelvey in 2009. Jack Dorsey currently serves as the CEO of Square as well as Twitter (TWTR). The company went public in 2015. It is headquartered in San Francisco and over 95% of the company’s revenue comes from the United States.

Square operates in two distinct segments, Seller services and Cash App. Seller ecosystem offerings include card readers, Square POS software, Square Dashboard, Square Card, Square Capital and Square Payroll. These offerings help sellers accept payments, manage inventory, manage employees, enhance customer engagement, secure capital and create an online presence among other uses. The company processed $106 billion in Gross Payment Value (GPV) in 2019.

Approximately 45% of the sellers had GPV of less than $125,000 as of December 2019. Sellers from food and beverage and retail industry account for 43% of total company GPV.

Square Capital offers loans to merchants. The company then sells majority of these loans to institutional third-party investors. The Square Capital business adds to the company’s core offering by attracting new merchants and growing existing ones. In fact, Square recently received FDIC approval for a banking license.

The Cash App ecosystem focuses on consumers through its mobile payments app “Cash App”. The app allows individuals to store and transmit funds as well as invest in Bitcoin (

This article was written by

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Left Brain Investment Research has no positions in any of the aforementioned securities. However, affiliate companies Left Brain Capital Management and/or Left Brain Wealth Management are long Square (SQ).

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Comments (55)

Michael Clark profile picture
@prudent 576
"Not yet perfect.."

Are you serious. Is there ever going to be a perfect company? Has there ever been one?

You may be right about $80 -- but stocks move in cycles (investor cycles). What does that have to do with perfection?
prudent 576 profile picture
Just sold SQ, making almost 100% since purchase in March. Great company, but not yet perfect. The PE is high and next quarter numbers are in question due to business disruptions. The trend line from the 9/24/18 high of $99, through the 2/24/20 high of $83.33, leads me to believe the peak will be soon at about $80.
Michael Clark profile picture
@prudent 576
YOU NEVER GO BROKE taking profits. But SQ is up 20 points since you sold.
You never go broke taking profits, but you MAY NEVER build wealth selling winners to invest in losers, less-than-winners, and/or cash.

It cuts both ways.
Michael Clark profile picture


Target Gain



prudent 576 profile picture
Wow, I guess the shorts can get in now, ha, ha, ha.
Which one is better? Cash app or Venmo? Who's winning?
Once they report tomorrow this is going to be a $60 or less for months...
johnfairplay profile picture
Ouch! Did you mean $75 and above?
No, JohnFP, he meant $60 or "more" lol.
YourHuckleberry profile picture

Care to lend me some @ $76? I'm loading up on shorts today.

Because this is a phantom rally if I've ever seen one. SQ is piggy-backing PayPal as if it has the same business model and it clearly does not. Combine that with the deluge of upgrades and this is almost certainly a classic retail trap. Just a friendly warning.
ShankaSwingTrades profile picture
Hold your breathe if you hold this puppy through earnings..
$SQ is taking a huge hit, as most small bizz are closed.
they will be first to open!
ShankaSwingTrades profile picture
How do you know @jraskib ?

I'm speaking first hand.

-I own a small business
-We use square.
-We used to do 50K+ in sales a month. (2.75% goes to SQ)
-Now we do zero.
-How many (millions?) of businesses are just like me?
I know this stock has a cult following, but the numbers won't be anywhere near what they were, and prob for a long time.
If you don’t ,think investors know about how awful business has been and will continue to be lousy, you are mistaken. People are aware of the terrible earnings and revenue to be reported.
prudent 576 profile picture
I like your article, thank you. Consumer spending is going to explode when people are allowed to live out in society again. I've watched SQ for a long time and was lucky enough to have purchase some 3/23/20. It's up 70% and I expect it to continue rising.
inforlongrun profile picture
thank you for sharing your summary - very helpful
good article, thanks
nsei profile picture
Informative article. I’m hoping to build a massive position in this one over the next 2-6 months!
TJRyan profile picture
PayPal got this all sewed up,
The better play and the next quarter will be epic...
YourHuckleberry profile picture
Square is in for a rough ride for the next 2-4 quarters. The type of business they typically service are the smallest of the small and service businesses & those are disproportionately vulnerable to simply going away forever right now. They are likely to lose a massive number of accounts and it will take a while for those to be replaced. And that is on top of the fact that even if they survive most of their customer businesses have been idle and not processing for almost 2 months.

I don't hate Square as a long term story but I'm looking to short every rip for the near future. If that is too aggressive I would at least arbitrage it with a PayPal, Visa or another comp that won't get hit as hard. Just my two cents.
Trebeks_mustache profile picture
I agree with you, I would love to see it in the $30s again. I would buy a bunch to go with my PayPal, Visa & MasterCard shares.
Apple, Spotify, and Google aren't as unique and distinctive as square. I would fear Amazon entering the market, combining their e-commerce and creating a merchant aggregater the potential would destroy square.
hawk007 profile picture
I keep getting confused....do you mean SHOP?
Right, because small merchants that don't want to sell on the AMZN, most of them proprietorships or verySMBs, will rush to rush to participate in the AMZN Cash ecosystem, right?
The Abstract Investor profile picture
At the current price, it seems a bit difficult to stomach. Sure Cash App is the long term driver and they’re anchoring their Fintech consumer ecosystem. It just so happens that at the moment, their PoS business makes for the majority of their top line and it’s going to get absolutely crushed as all brick and mortar will be in Q2. As for a comparison to Shopify, they might converge as competitors later, but Shop is mostly online driven while Square is brick and mortar driven.

So what will that do to the forward EV/S which will likely be a fair bit higher than it is now? And what drawdown and how long is worth it for the long-term? I’d wait until further clarity on the recovery. It’s trading within pre-pandemic ranges (at about 6 months ago) and that makes me uncomfortable holding it through earnings. $45 made sense, $63 is tricky...
thats how markets work. One could argue the downdraft to low 30s essentially priced in zero business. If SQ has any life of a revenue (casinos were only down 70% being 100% shut) then SQ has online sales BOOMING. I believe SQ is severely undervalued and will show growth in this environment while everyone thinks they are lagging. GL
wilfredian profile picture
If you valued solely the Cash App at the same ratios as Shopify (and why not? Its growing much faster than shopify and has much stronger network effects- Cash App is building a monopoly), then Cash App alone is worth over $30b. In fact, I believe that if SQ were to spin it off the market would give it this kind of a valuation (compare to the $10b valuation of Robinhood or the valuation of Stripe).

So even if you value the seller ecosystem at $0, which is clearly insane, you are getting a great deal with SQ. You buy it for the Cash App which is absolutely **killing** all the competition (Venmo) in all the important metrics. Now that they were approved for a bank charter, Cash App's future is amazingly bright.

The Corona panic's impact on sellers doesn't matter because you don't buy it for seller, that's just thrown in for free.
The Abstract Investor profile picture
You make some good points @wilfredian That’s food for thought. I’ll have a go at revisiting SQ for a thorough analysis. It’s been a while.
Post pandemic reality? You have no idea of when "post" is, how many of their business partners will survive and how much disposable cash will be transmitted over their payment or transfer systems. Therefore, there is no basis to define reality.
Totally agree. I constantly hear people talk about "looking through 2020" as if the next few quarters don't matter anymore. That's just trapping folks to jump in this highly inflated market. I understand it's about your investment horizon. But when we have a depression-like unemployment number, it's really hard to justify living in a fantasy world as if nothing happened.
Had bought SQ when it was at $10. Sold at $64. In between Seeking Alpha was hell bent on convincing its readers that SQ was over valued. They screamed and shouted but I was calm. Moral of the story: Read what these analysts write but make your own mind.
Comparing a bubble (SQ) with bubbles (SHOP, STRIPE) is not a good way for investment.
HardytheTrader profile picture
How is $SQ a bubble? Don't talk about P/E now, because this metric is dysfunctional to value growth stocks.
It has a lot of room to grow therefore it is fairly valued at ~6x EV to sales. Depending on the shape of the economical recovery maybe even substantially undervalued
SQ is definitely not a bubble but the other two you are comparing it with. SQ is only trading at ~6 times sales but SHOP is trading at ~40 times!!
I don't know. I smell something fishy. I suppose it's hard to define and discern a bubble when everything is bubbly.
NukiH profile picture
I live a normaly life, not sure what your talking about.
I do like square but i traded out 40 percent around my core during covid. I dont think there is any rush to buy it back in the next quarter or two. Its still far to tethered to small and medium business that will see half of capacity or less for many many months. Thanks for the heads up though that long term this must be re-bought
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