Square Inc., an invisible bullet. How can this stock not be blasted all over MSNBC or Bloomberg or maybe even here, on Seeking Alpha? Well, was Apple, Netflix, and Amazon followed in their first couple of years? The answer is no. People started buying shares of those companies when Hedge Fund managers and analysts told them to buy. Even though thousands made lots of money, what if you bought shares of apple before the iPhone, was released? When I look at Square, I see a company that is capable of that. Notice the word capable, no one can predict the future, so the next best thing there is in the financial world is data. Lots of data.
Square's (NYSE:SQ) IPO was priced on 11/19/2015. It shot up 45% in one day. This is normal. The stock is now heavily overvalued and it wasn't until February of next year that it fell below $9. This, at the time, was the value of the share. Then the Starbucks (NASDAQ:SBUX) deal came around and was deemed a loser. Square said, "We anticipate that Starbucks will transition to another payment processor and will cease using our payment processing." All of this is bad in the long term, but it also shows an opportunity for the company to mature. Without Starbucks, no Square customer will account for more than 10% of annual revenue.
In their latest 10-Q, it shows the company investing $609,910 in short-term investments and $196,020 in long-term investments. The company had no investments in the last quarter. In the 4Q of 2015, the companies revenue was only $374 million. In the 1Q of 2016, the revenue only grew to $379 million. By this time, Starbucks is no longer making money for Square. So Square invests in long and short term investments during this 2Q of 2016. Instead of the company being dragged down by the Starbucks deal, the company shattered expectations and made a revenue of $438 million.
Now, all of this is good news, but no one should invest in this stock until you know how it makes its revenue. Square uses the same business structure as big credit card companies, as it takes 2.75% per swipe or 3.75% plus 15 cents for manually typed transactions. So, how does Square stand out against it competitors? The first one is the inexpensive hardware that can connect to your phone via the headphone jack. This costs $10 and is used by small businesses. Then there is Square chip reader which accepts credit card swipes like the last one, but also accepts NFC payments and Apple (OTC:APPL), Android (NASDAQ:GOOGL), and Samsung pay. It is compatible with most Apple and Android phones and only costs $49. Now, for more established companies, there is the Square stand which costs around $170. It uses an iPad for a touchscreen and you can accept payments like the last two models, but it can also track inventory and send invoices.
The second way it's making money and growing is from Square Capital. Square Capital gives small business owners loans to grow it business. To demonstrate how this works, an example is given on their website. If you are a Square customer and are eligible for a loan, you are given several loan plans. Let's say a business owner selects a plan for $10,000. Square Capital will take home a fee over time of $1,300. Usually, a company would send the minimal amount due for a loan at the end of the month to a bank, but Square makes it so much easier. Square takes a higher percentage from every purchase until the loan is paid off. So if the business is making money, then Square is making money. This also shows how the Square can make a lot of money giving out loans.
For the optimistic investor, this stock shows a lot of upsides and if it keeps beating its estimated quarterly earnings, increases the number of customers, and shows promising returns in Square Capital, then this stock is a sure buy.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position 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.