Square parent Block is the IBD Stock of the Day as the digital payments company forms a high handle on a cup base after briefly breaking out on fourth-quarter earnings. Analysts are focused on Cash App banking services as a growth engine.
On the stock market today, Square stock rose 1.5% to close at 75.53.
In its core businesses, Square has built a two-sided digital payments ecosystem, with products designed for both merchant sellers and consumer buyers. The Square Cash App has 56 million active monthly users. Cash App helps individuals manage money, buy stocks and cryptocurrency, and more.
Meanwhile, Square stock surged on its Q4 earnings report and outlook. In intraday trading on Feb. 23, Square stock popped to 83.29 before closing up nearly 11% at 78.92.
This month, Square stock has been consolidating. While an older entry point of 80.29 is still there, SQ stock has forged a cup-with-handle buy point of 83.29.
Overall, Square stock has dipped 1% this year.
Block aims to bridge the Cash App and merchant ecosystems with consumer financing services from Afterpay. Block acquired Afterpay in early 2022. Afterpay offers consumers "buy now, pay later" (BNPL) installment payment services.
The Afterpay purchase fits into a broader strategy of expanding the Cash App's banking services.
Cash App Banking Services
As of Dec. 31, the Cash App banking card had reached 23 million monthly active users, with 2 million Cash App deposit monthly active users.
"Management sees Cash App Card as a conduit by which existing customers can engage more fully with Cash App banking services," said Macquarie analyst Paul Golding in a report. "New banking features and products will also be used as incentive — new features introduced recently include free overdraft coverage, a 4.5% savings yield capability for direct deposit users, credit building tools, spending insights, and subscription management tools."
Golding added: "Block is also looking to close the offerings gap with more traditional features provided by brick-and-mortar institutions, like wire transfers, check deposits, and bill pay. And on the credit front, Block thinks it can differentiate itself from other platforms, both digital and brick-and-mortar competitors, by integrating Cash App Card and Afterpay — essentially a synthetic credit card leveraging point-of-sale lending."
In addition to earnings and revenue, Wall Street analysts focus on some other key financial metrics for Square stock.
For 2024, Square forecast gross profit of at least $8.65 billion vs. consensus at $8.55 billion. Square said it expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of at least $2.65 billion vs. consensus at $2.4 billion.
To improve margins, Block has told analysts it will cap its workforce size at 12,000. Also, Block plans to deprioritize international expansion of CashApp to focus on the U.S. market opportunity.
Company Name Change To Block
In late 2021, Square changed its name to Block, while retaining the ticker SQ. The move reflected the company's commitment to blockchain technology, which underpins cryptocurrency.
Amid the name change, the company retains the Square brand for merchants that use its point-of-sale technology and services.
For merchants, Square makes credit-card readers that plug into mobile devices. Its Square Capital division provides loans to sellers.
With roots in serving such micromerchants as food trucks and farm-stand vendors, Square has moved "upmarket," targeting larger businesses. In addition to selling credit-card readers, Square provides software for point-of-sale and back offices in order to manage inventory and other tasks.
Further, Block in 2023 replaced the head of its merchant Square business, Alyssa Henry, with Block and Twitter founder Jack Dorsey.
Also, some investors fear potential weakness in Square's point-of-sale business amid growing competitive pressures from Toast in restaurants and Fiserv's Clover unit generally.
Square Stock: Technical Ratings
In the event a U.S. recession eventually hits, one question is how resistant Square will be to a business downturn. The relatively low income levels of Square's customer base is one factor for investors to consider if the U.S. economy weakens, analysts say.
Square's Relative Strength Rating stands at 73 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an 80 or better RS Rating.
Block stock holds an IBD Composite Rating of 96 out of a best-possible 99.
SQ stock, meanwhile, holds an Accumulation/Distribution Rating of B-. The rating runs from a best-possible A+ to a worst-possible E. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
