Square Inc: Why SQ Stock Is Going Nuts Right Now

Square Inc: Why SQ Stock Is Soaring High Right Now
iStock.com/Ong-ad Nuseewor

Square Stock Making a Strong Comeback

After a terrible fourth quarter, the U.S. stock market seems to have finally started to recover. One of the stocks that bounced back extremely quickly was Square Inc (NYSE:SQ).

Square is a mobile payments company headquartered in San Francisco, California. It was founded by Jack Dorsey and Jim McKelvey in 2009 and went public in November 2015. Notably, Dorsey is also the co-founder of Twitter Inc (NYSE:TWTR) and currently serves as the chief executive officer (CEO) of both Twitter and Square.

On Wednesday, January 9, Square stock surged 4.4%. Looking a bit further back, we see that SQ stock is up more than 17% year-to-date. Mind you, we only had six trading days so far this year, which makes SQ stock’s performance particularly impressive.

Why did the stock climb so fast?


Why Square Stock Was Soaring

Well, the most recent catalyst seems to be the introduction of a new feature that allows developers to use Square’s payment system within their mobile apps.

On January 9, the company launched the “Square In-App Payments Software Development Kit” (SDK). Thanks to this kit, developers and sellers can process payments with Square within their consumer-facing mobile apps.

The SDK is supposed to be very easy to use as the company said: “With just a few lines of code, developers can easily and professionally build a fully PCI compliant, secure, and elegant Square-powered payments flow in their Android or iOS apps.” (Source: “Square Launches Payments SDK, Enabling Developers to Process Payments With Square in Their Mobile Apps,” Square Inc, January 9, 2019.)

Investors liked the news as Square stock surged as much as 5.5% after the announcement before closing with a 4.4% gain for the day.

Another piece of major news for SQ stock recently was the appointment of a new finance chief. On January 3, the company named Amrita Ahuja as chief financial officer (CFO). She is currently the CFO of Activision Blizzard, Inc. (NASDAQ:ATVI) and will join Square later in January. (Source: “Amrita Ahuja to Join Square as Chief Financial Officer,” Square Inc, January 3, 2019.)

“Amrita brings the ability to consider and balance opportunities across our entire business, and she will help strengthen our discipline as we invest, build, and scale,” said Dorsey. (Source: Ibid.)

Square Inc Financials

In my opinion, recent news served as a catalyst for SQ stock, but a more important reason behind the latest rally in Square Inc’s share price was the company’s growing business. You see, Square stock fell deep into the doldrums in the fourth quarter of 2018 when the market crashed, but the company’s fundamentals remained solid.

Looking at its latest earnings report, we see that Square Inc generated adjusted revenue of $431.0 million in the third quarter of 2018, representing a whopping 68% increase year-over-year. The company also turned a profit of $20.0 million for the quarter, compared with a net loss of $16.0 million in the year-ago period. (Source: “Q3 2018 Shareholder Letter,” Square Inc, November 7, 2018.)

Despite delivering solid results on both the top and bottom lines, SQ stock kept falling in the fourth quarter. In fact, even after its comeback to start 2019, the company’s shares are still down more than 30% from its high in September 2018.

Analyst Take

Like many popular tickers in the tech sector, the future of Square stock will have a strong correlation with market sentiment. If the market enters another sell-off, SQ stock’s rally likely won’t last. But if the market recovery continues, investors may warm up to this mobile payment company and put Square Inc stock back on its uptrend.

At the end of the day, not every company can pull off a 68% growth rate.