Square Stock at Risk on ‘Bitcoin Mania’: BTIG | Investopedia


Square Stock at Risk on ‘Bitcoin Mania’: BTIG | Investopedia

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Shares of fintech​ company Square Inc. (SQ) fell more than 16% Monday following a bearish note from a team of analysts on the Street who see “no clear path to profitability” at the mobile payments company.

On Monday, BTIG analyst Mark Palmer downgraded SQ to sell from neutral along with a $30 price target, expecting shares to fall nearly 27% within 12 months. Closing at $41.02, shares of the San Francisco-based fintech firm still reflect a whopping 201% increase year-to-date (YTD), while the S&P 500 has gained 16.2% over the same period. (See also: Square's Market Cap Is Now Bigger Than Twitter's.)

Reflecting on Risks

Palmer attributed the downgrade to overblown excitement over Square’s experiment with bitcoin, writing that the stock’s valuation “already reflects empathic and unimpeded growth while failing to factor in competitive, credit-related and macro risks.” He warns that “any pause in the current Bitcoin mania” could be a risk for Square, run by CEO Jack Dorsey, who is also the CEO of Twitter Inc. (TWTR).

In mid-November, Square started allowing some users to buy and sell the digital currency on its Cash app, which is similar to PayPal Holding Inc.’s (PYPL) Venmo mobile app and lets users send and receive money between one another. While the analyst noted that bitcoin could provide a “marginal contribution” to Square’s revenues if the trial succeeds, he is worried about the company having ties to a “cryptocurrency​ that has frequently displayed extreme volatility.”

Palmer also highlighted downside from an intensified competitive landscape with players such as First Data Corp. (FDC), which he points out is trading at just nine times 2020’s projected EBITDA versus Square, which is trading at 28.1 times. Further, he is not keen on Square’s moves to increase its focus on its Square Capital credit unit as a driver of growth and suggests that its stock could be at risk in a financial downturn due to its dependence on small business customers. (See also: Square Is Doing Bitcoin Trials.)