What Does the Future Hold for SQ Stock?
Despite a successful first day of trading, Square, Inc. (NYSE:SQ) still has a long way to go before it can rule the payments market. From “Apple Pay” to Bitcoin, the shift toward digital payments has become a mass migration, leaving a question mark over the future value of SQ stock.
In the run up to its initial public offering (IPO), Square constantly lowered its starting price. Eventually, the IPO price was more than 40% below the target set at a private funding round the year before.
Some took that as a sign that another “tech bubble” had formed and the resulting Armageddon was only days away. They pointed to the rise of “unicorns” (startups that cross over $1.0 billion) as clear evidence that Silicon Valley had run amok.
Others thought the evidence pointed in the opposite direction. They argued that by lowering its IPO price, Square was being responsible and self-aware. That level of restraint usually doesn’t exist in a bubble.
By definition, negativity goes out the window in a bubble and valuations are never pulled back, but both sides are avoiding the obvious explanation. Before I tell you what it is, let me explain why Square stock could still have some fuel in the tank.
The Bullish Case for Square, Inc.
Square is a mobile payments company that started off like PayPal Holdings, Inc., offering users the ability to transfer funds directly from one account to another. But since then, the company’s product line has grown broader and incorporated hardware offerings.
Square offers a card reader for free to businesses that create an account with the company. The card reader simply plugs into the headphone jack on a smartphone, essentially transforming a phone into a credit terminal. Can you imagine how much that could improve the efficiency of small businesses around the country? Never again would you have to read the sign “Cash Only.”
Imagine a landscaper named Bishop who lives in Vermont. Bishop could simply sign up for a Square account and receive the card reader for free. It would allow him to process debit and credit card payments without buying a bulky terminal. As soon as the transaction is done, he could pay off the bills accrued for materials. All of this could be accomplished using the same app. But what about Apple Pay or one of the other payment services cropping up to compete with Square? What about PayPal?
It’s true the payments industry is getting saturated, but Square is in a uniquely strong position. It has physical devices that would lock merchants into the Square app. At the same time, the physical device makes it so payees don’t have to download the app; only the merchant does.
That’s convenient on both ends.
Square Stock Poised for Massive Growth
Even with the added competition, there may be room for more than one victor. Consider the case of Uber and Airbnb. Both provide ways for people to make money, but those people are not full-time employees and Uber and Airbnb don’t need to own cars or real estate to run their business.
This transition is happening on a broad scale, forming what economists are calling “the sharing economy.” More and more, people are working on a contract basis, when and where they choose. By extension, that means that transactions between merchants and customers will be diffused across millions of people rather than just thousands of stores.
A cheap and efficient method of payment is needed. That’s where Square comes in.