Financial services and payments technology company Square (SQ) just announced a plan to acquire Afterpay, which offers buy now pay later services, after purchasing a majority stake in the music platform Tidal. Let’s take a look at Square’s latest financial performance and risk factors.
Square’s Q2 Financial Results
In Q2, net revenue increased 143% year-over-year to $4.68 billion, with all of Square’s business segments posting strong growth. Hardware, Subscription, and Transaction revenue rose 126%, 98%, and 80% year-over-year, respectively. Meanwhile, net income came in at $204 million, compared to a loss of $11 million in the same quarter last year.
Additionally, Square revealed that Cash App, through which it offers a bitcoin trading service, has reached 40 million monthly active users. Notably, Cash App’s bitcoin revenue increased by about three times from a year ago to $2.72 billion. (See Square stock charts on TipRanks)
Square’s Risk Factors
According to the new TipRanks Risk Factors tool, Square now carries a total of 50 risks, up from 48 previously. Finance and Corporate is the primary risk category, accounting for 34% of the total risks. Legal and Regulatory and Tech and Innovation are the next two major risk categories at 24% and 20%, respectively.
Since June, Square has added six new risk factors, most of which are related to the Tidal acquisition. For example, the company cautions that Tidal represents a new business line and subjects it to a number of uncertainties. Its current management team has little experience in the music industry and it will need to rely on Tidal executives.
Furthermore, Square warns of potential disputes and litigation over payments to Tidal content providers.
Another new risk that investors should take note of is Square’s banking business. Square partnered with Sutton Bank on a checking account program for its merchants. Management says that the move into banking subjects it to added regulatory obligations, and its business and brand may be adversely impacted if things go wrong.
Analysts’ Take
On August 2, Oppenheimer analyst Dominick Gabriele reiterated a Buy rating after the company announced the acquisition of Afterpay. The analyst did not assign a price target to the stock.
Gabriele commented, “The goal is to better link SQ’s Seller and Cash App platforms…This transaction expands SQ’s upmarket desire with Afterpay consisting of mostly enterprise merchants in the retail space.”
Consensus among analysts is that SQ is a Moderate Buy based on 21 Buys, 6 Holds, and 1 Sell. The average Square price target of $301.29 implies 11.8% upside potential to current levels.
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