September was an action-packed month for e-commerce ecosystem provider Square (SQ), with a new announcement every week.
The launch of point-of-sale system Square Register in Canada; its point-of-sale (POS), payments, software, and merchant services being chosen to power SoFi Stadium and Hollywood Park; the launch of its touch-free payment solution — Cash App Pay; and the introduction of omni-channel solutions in France are among the most noteworthy developments for Square this month.
However, what’s getting the most attention is Square’s $29-billion entry into the highly competitive “buy now, pay later” (BNPL) domain last month, with the Afterpay acquisition. I maintain a bullish stance on the stock because of its aggressive growth driving moves. (See Square stock charts on TipRanks)
The Rush for BNPL
BNPL has been on the minds of payment companies for quite some time. However, the importance of this option was realized during the coronavirus pandemic. Companies are also becoming aware that the trend of BNPL is expected to continue for a long time.
Inflated prices of goods and services, combined with rising rates of unemployment and financial insecurity, are stemming from the coronavirus-induced supply-chain challenges, outdoor restrictions, and shutdown of many businesses. These troubles are the primary drivers of the solid demand for BNPL solutions.
Most people now prefer to make all possible transactions online, even with the ease of pandemic-led restrictions. Most consumers are still using credit cards and digital wallets to make a purchase. However, the ease of spreading out interest-free payments to purchase items is attracting more and more consumers, particularly the younger crowd.
Moreover, BNPL also enables consumers to avoid credit card balances and interests that keep adding up until they are paid off. This is another momentum driver for BNPL.
Competition Opens Wider
This massive momentum is attracting strong competition in this domain. The BNPL space is witnessing increased consolidation in recent months as payments companies are looking at partnership and acquisition deals with dedicated BNPL players to boost their portfolios.
Afterpay, with customer and merchant bases standing at 16 million and 100,000, respectively at the end of H1 2021, is considered the pioneer of BNPL. Although Amazon (AMZN) already has a BNPL option with Amazon Payments, the impending acquisition of Afterpay has propelled Square towards the top end of the ladder, strengthening its competitive position against heavyweights like Amazon and PayPal (PYPL).
As if in an answer to this major step taken by Square, on August 27, Amazon announced its collaboration with Affirm Holdings (AFRM) to bolster its BNPL offerings. Moreover, on September 8, PayPal announced its acquisition agreement to take over Japanese BNPL startup Paidy for $2.7 billion.
Wall Street is cautiously optimistic about Square, with a Moderate Buy rating based on 18 Buys, four Holds, and one Sell. The average Square price target of $313.38 indicates an upside potential of 21.4%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
