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Square: Killing It

Aug. 02, 2021 11:26 AM ETBlock, Inc. (SQ)AFTPF, AFTPY, BTC-USD69 Comments


  • Q2 earnings show solid growth with little signs of slowing down.
  • A sizable Australian acquisition will help scale.
  • Bitcoin trades helping drive traffic and usage.
  • Cash app still strong as small business returns.
  • Shares are going much higher.
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We love financial tech stocks, and near the top of the list is Square (NYSE:SQ) which we have traded several times. That said, whilst being a great trading stock, the easiest move is to buy and hold over

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Quad 7 Capital profile picture

Quad 7 Capital is a team of 9 analysts with a wide range of experience sharing investment opportunities for nearly 12 years. They are best known for the February 2020 call to sell everything & go short, & have been on average 95% long 5% short since May 2020. The broader company has expertise in business, policy, economics, mathematics, game theory, & the sciences. They share both long & short trades & invest personally in equities they discuss within their investing group Bad Beat Investing, focused on short- & medium-term investments, income generation, special-situations, & momentum trades. Rather than just give you trades, they focus on teaching investors to become proficient traders through their playbook.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in SQ over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (69)

I am becoming more and more confident in SQ; recently added on two or three occasions.

I'm really liking their strategic growth moves; and fintech is a very big runway.

Might end up bringing this one up to the % of portfolio I have allocated to AMZN, GOOGL, TSLA, ANET, and UI (about 3-4% each).
stuck profile picture
The valuation of this company is outrageous. You got to be kidding me. It overpays for a company with overvalued stock. That looks good. But no one really knows what Square is going to do with it.....And the stock goes up. This is not an investment, it is chasing hot air.
Which valuation metrics? P/E? SQ is keeping the earnings around zero to fuel the 87% revenue growth (ex bitcoin). Division by a small number is a large number. Other metrics are actually pretty decent.

Keep in mind that this is a company almost doubling revenue yoy, with a pristine balance sheet (all debt is convertibles), that is also profitable. It's expensive, but as in life, good things are expensive.
You don't understand Fintech, and disruption. You probably said the same thing about valuations of AMZN, FB, etc. years ago. One would have been equally correct (wrong) if one did.
Buyandhold 2012 profile picture
Yes, Square is killing it.

Up 2,610.25% in the past 5 years.

Only 2 stocks that I follow have done better

Enphase: Up 10,129.61%

Shopify: Up 4,488.94%

And only one stock that I own has even come close.

RH: up 2,188.69%
@Buyandhold 2012 Afterpay up 4193% in only 4 years. Not a bad combination.
siestadreamer profile picture
Do I understand correctly…you’re bullish but may initiate a short position?
I want to preface my comment below by acknowledging that I know very little about Afterpay so please don't get upset with me if I'm not getting it but I suspect that a lot of other people don't know much about Afterpay either but are too intimidated to ask questions about it. For the record, I have owned SQ stock and have been debating about whether to get back in. Here's what concerns me. Am I the only one who sees a lot of risk in this deal? $29B for a company with the following 5 year net profit figure as follows (FYE 2020 at the far left):

Net Income (19,780.0) (42,861.0) (8,976.0) (9,620.0) (3,552.3)

Not only that but they also need to demonstrate that they know credit risk and how to price it. I mean I thought I saw something float across the CNBC screen that the Afterpay business model will allow a customer to buy something at a store by swiping and then paying the bill off in 4 equal installments at 0% interest as long as they keep making payments on time. If the customer goes delinquent then they charge him interest. I just wonder how they can make that business model profitable. Visa and Mastercard charge double digit interest rates to make this business model work. Grateful for whatever enlightenment folks can provide.
@The Bank The issues you are bringing up are very important and seem to be dismissed by many commenters. The big credit card companies / issuers do not want the business demographic that is SQ's core clientele. They didn't want this business because it cost too much to service for each dollar of revenue. This business customer base also represents a relatively greater credit risk.

I think you are also correct to wonder if SQ has the correct intellectual capital to monitor risk. Certainly some risk parameters can be manage through algorithms, but there are lots of edge of bell curve events that algorithms can't assess. Ask the guys at Long Term Capital about that.

Everyone should note that SQ keeps emphasizing gross margin and gross profit instead of net profit. I think they do this because it is not clear that SQ's core business is actually scaling up profitably after all costs are factored in.

SQ's involvement in BTC and Tidal seem like a distraction and are very questionable from a business and P&L standpoint. Management seems more interested in their hip bonafides than real profits. This stuff looks cool, but does it make any actual profit?

Certainly SQ shares are worth something, but most probably only a fraction of the current share price. This is one hugely overvalued stock. The author of this article indicates there is no proper way to value this organization. That should be a big warning sign to investors. That is not something to gloss over.

Shouldn't this company have already scaled up to real net profitability by now?
@Cursus Thank you for some interesting enlightenment on this subject - especially in your first paragraph. I did not stop to think about the attraction of this business to the major credit card issuers and was intrigued to hear that this business was considered unattractive by them. While I think I am going to hold off on buying shares of SQ for now, I will say that I am a little concerned for my long positions in V and MA. I have long felt that the credit card companies have gotten away with making outsized economic profits and couldn't help but wonder if an entrepreneur couldn't come in and undercut on pricing after which the business would never be the same.
@The Bank compare the gross margin of V to that of SQ. It is very revealing.

It is a difficult market to invest in overall at this point. In general shares are fully valued to overvalued. Artificially low interest rates are driving up PE multiples.

V and MA are great businesses especially during periods of inflation. They are both part of an oligopoly. These are low asset toll booth businesses. One has to decide if they are traders or investors. That said, if shares get egregiously over valued I have been taking some profits. Real interest rates can’t remain negative indefinitely.

Good hunting.
Really like the strategic business acquisition of Afterpay.

Doubled up my SQ share count this morning; I think this compqny probably has a ton of growth ahead of it.
@Pineside Yeah probably but what are they going to do if people don’t pay back? Take a loss?
What arrangements might they have with merchants when for such scenarios... what might they create in the future?

What other accounts (like CashApp or crypto holdings) might they have with those customers defaulting... what provisions might SQ have there (e.g. collateralization) or what provisions might SQ add to such accounts in future.

Lots of risk-mitigation potential I think.
@canyon I agree. I asked my broker and he said that this is part of the reason Wells Fargo got out of personal loans. The problem is that the American public buy things they can’t afford, waste money paying premium on Starbucks coffee, etc. There is a dearth of financial literacy in the US. That being said I’m long SQ, I think they'll figure out how to be successful.
02 Aug. 2021
Great company, but has 15 years of growth priced in already. Valuation is nonsense.
15 years of doing the same thing, maybe.
AMZN had 15 years of selling books online built in to it, but it grew to something bigger.

If SQ gets deeper into SaaS, merchant solutions like P&C insurance or procurement or new lending models, the 15 years of growth will be such an obsolete calculation (garbage in...). If. Some are investing in disruption, not CC transaction processing.
Not going to chase it after it goes up so much today. Will patiently wait for a correction.
long since 25!! 😮
2live4divs profile picture
love SQ! will hold foreveŕ
notAgainPlease profile picture
45c earning for 280$ stock? Mkt cap more than GS and earning less than 40x ? I mean how much do they have to grow to generate profit as much as GS? This is an absurd valuation.

Buy now, pay later is going after low tier who will default and won't be able to pay back. Most good credit cards offer to split big amounts to their good customers anyway. Paying in stocks so huge dilution coming.

Also heard Apple is coming later this year for pay later so you can forget the 1B plus apple users who have a lot more money to spend.

I expect this to be below 200 in the next 6 months. Bought Jan 2022 200 put for 6$ this morning.
@notAgainPlease I expect SQ to be over 1000 in 5 years
@raining2009 I agree with Raining. Square will be higher in the long run than they are today.
@notAgainPlease That’s what they said about Amazon 25 years ago!……..Great companies with great vision grow into their valuations……..SQ is one of those companies………….Very happy to be long SQ!……..(At a cost basis of just over $50!)
Let me beat you to it, fools:

No moat
Sky high valuation
Idiot/freak/liberal CEO
Why can't the lega, ah, dinosaur banks just do the same thing
Too much competition
V and MA will crush them

So glad I only sold 200 of my 700 shares at $90 something for a stupid double. Long SQ (and PYPL and PAGS and SHOP and V and MA).
John Rhodes profile picture

I own no SHOP. It turned out better than I expected. C’est la vie!
@canyon that’s a great tall seller impression. You forgot about the part where he screams about the DTC powerlist no one cares about tho. Oh, and you forgot to write every other word In all caps
Jim Cramer may suck but to this day I give him credit for telling me about Square at $45
Lord Krungharr profile picture
Wish I would have bought more on the dip....
stuck profile picture
I just can not justify the ridiculous valuation of this stock in this sector. WAAAAAAY overpriced, and Jack Dorsey just seems to be at 420 all the time. And if you think Square can take over banks, there are hundreds of these entities doing it better then Square.
bullish bengal profile picture
@stuck can you enlighten us with some of these hundreds of entities?
@stuck what are the names of the top 10 entities doing it better than square?
John Rhodes profile picture
@Seeking more alpha than you

I understand and like PYPL more. Clearer picture, lower risk, less dependent on Bitcoin. However, SQ does seem to have special sauce.

We’ll see…
Tired of parroting the same line...SQ is monster in the making. Going right after legacy banks and eating their lunch, but banks either too stupid to realize or too stupid to figure out what they should do about it. Maybe that's because SQ has not targeted any one particular bank but the entire industry. SQ is a huge company delivering small growth company growth #s.

Do your own DD.

High Yield FIREVestor profile picture
Multibagger, PT 800 🚀🚀🚀🚀🚀
Quad 7 Capital profile picture
@Investing4FIRE have to tell you it definitely has that chance we talked about it at our BAD BEAT round tables and concur it’s likely a double from here in the next 2 years.
High Yield FIREVestor profile picture
@Quad 7 Capital I will slowly and meticulously add to my current position...won't add anything today
John Rhodes profile picture

When are you buying? Price point?
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